CP13/9 Implementation of the Alternative Investment ... - BVCA admin

Consultation Paper 

CP13/9 

Financial Services Authority 

Implementation of the 

Alternative Investment 

Fund Managers Directive 

Part 2 

March 2013

Contents 

© The Financial Services Authority 2013 


Implementation of the Alternative Investment Fund Managers Directive 

Abbreviations used in this paper 3 

1. Overview 7 

2. Implementation 13 

3. Operating requirements for full-scope and sub-threshold AIFMs 21 

4. Prudential requirements 27 

5. Consumer redress: the FOS and the FSCS 29 

6. Depositaries and client assets requirements 36 

7. Marketing 40 

8. Fees 45 

Annex 1: Cost benefit analysis 

Annex 2: List of consultation questions 

Annex 3: Compatibility statement 

Annex 4: Prudential classification for investment fund managers 

Annex 5: Summary of FOS and FSCS coverage of cross-border 

activities 

Appendix 1: Draft Handbook text

The Financial Services Authority invites comments on this Consultation Paper. Comments 

should reach us by 10 May 2013. 

Comments may be sent by electronic submission using the form on the FSA’s 

website at: www.fsa.gov.uk/Pages/Library/Policy/CP/2013/cp13-09-response.shtml. 

Alternatively, please send comments in writing to: 

Investment Funds Team 

Policy, Risk and Research Division 

Financial Services Authority 

25 The North Colonnade 

Canary Wharf 

London E14 5HS 

Email: cp13_09@fsa.gov.uk 

It is the FSA’s policy to make all responses to formal consultation available for public 

inspection unless the respondent requests otherwise. A standard confidentiality statement 

in an email message will not be regarded as a request for non-disclosure. 

Despite this, we may be asked to disclose a confidential response under the Freedom of 

Information Act 2000. We may consult you if we receive such a request. Any decision 

we make not to disclose the response is reviewable by the Information Commissioner 

and the Information Rights Tribunal. 

Copies of this Consultation Paper are available to download from our website – 

www.fsa.gov.uk. Alternatively, paper copies can be obtained by calling the FSA 

order line: 0845 608 2372.

Abbreviations 

used in this paper 

Acronym Description 

March 2013 



AIFM alternative investment fund manager 

AIFMD Directive 2011/61/EU of the European Parliament and of the 

Council of 8 June 2011 on Alternative Investment Fund Managers 

and amending Directives 2003/41/EC and 2009/65/EC 

and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 

APF authorised professional firm 

AUM assets under management 

AUT authorised unit trust 

BIPRU Prudential sourcebook for Banks, Building Societies and Investment 

Firms of the FSA Handbook 

CASS Client Assets sourcebook of the FSA Handbook 

CBA cost benefit analysis 

CDF Common deposit fund 

CIF Common investment fund 

CIS Collective investment scheme 

COBS Conduct of Business sourcebook of the FSA Handbook 

COLL Collective Investment Schemes sourcebook of the 

FSA Handbook 

Commission European Commission 

Financial Services Authority 3



CP consultation paper 

CP1 the FSA’s first AIFMD consultation 

CP2 the FSA’s second AIFMD consultation 

CP3 the FSA’s third AIFMD consultation 

CPM firm collective portfolio management firm 

CPMI firm collective portfolio management investment firm 

EEA European Economic Area 

ESMA European Securities and Markets Authority 

Annex X 

EU European Union, which includes the European Economic Area 

(EEA) unless otherwise stated 

FCA Financial Conduct Authority 

FOS Financial Ombudsman Service 

FSA Financial Services Authority 

FSCS Financial Services Compensation Scheme 

FSMA Financial Services and Markets Act 2000, as amended 

FUND draft Investment Funds sourcebook of the FSA Handbook 

GENPRU General Prudential sourcebook of the FSA Handbook 

IPRU (INV) Interim Prudential sourcebook for Investment Business of the 

FSA Handbook 

Level 1 Directive Directive 2011/61/EU of the European Parliament and of the 

Council of 8 June 2011 on Alternative Investment Fund Managers 

and amending Directives 2003/41/EC and 2009/65/EC 

and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 

Level 2 Regulation Commission regulation on AIFMD implementing measures 

LLP UK limited liability partnership 

Member State a Member State of the European Union 

MiFID Directive 2004/39/EC on Markets in Financial Instruments 

MoU Multilateral Memorandum of Understanding 

NURS non-UCITS retail scheme 

OEIC open-ended investment company established under the OEIC 

Regulations 

4 Financial Services Authority March 2013



OJ Official Journal of the European Union 

Part IV permission a firm’s permission to carry on a regulated activity granted 

under FSMA (from 1 April 2013, this will be referred to as a 

Part 4A permission) 

PERG Perimeter Guidance Manual 

Prospectus Directive Directive 2003/71/EC on the prospectus to be published when 

securities are offered to the public or admitted to trading (as 

amended) 

QIS qualified investor scheme 

RAO Financial Services and Markets Act 2000 (Regulated 

Activities) Order 2001 (SI 2001/544) (as amended) 

REIT real estate investment trust 

RTS regulatory technical standards 

SUP Supervision manual of the FSA Handbook 

SYSC Senior Management Arrangements, Systems and Controls 

sourcebook of the FSA Handbook 

The Treasury Her Majesty’s Treasury 

UCIS unregulated collective investment scheme 

UCITS undertaking for collective investment in transferable securities 

UCITS Directive Directive 2009/65/EC on the coordination of laws, regulations 

collective investment in transferable securities (recast) 

UK Authorities The Treasury and the FSA 

UPRU Prudential sourcebook for UCITS Firms of the FSA Handbook 

VoP variation of a Part IV permission 

March 2013 


1 

Overview 

March 2013 

Part II of our consultation 



1.1 This Consultation Paper (CP2) is our second consultation on rules and guidance to 

transpose the Alternative Investment Fund Managers Directive (AIFMD) in the UK. We 

originally intended this paper to cover all the issues set out in Annex 6 of our first 

Consultation Paper (CP1) published on 14 November 2012. 1 However, continuing 

European transposition work on the AIFMD, and FSA operational change resulting from 

UK regulatory reform, have meant that we cannot cover them all in this paper. Nonetheless, 

we and the Treasury (the UK Authorities) continue to work together to ensure full 

transposition of AIFMD by 22 July 2013. 

1.2 This paper should be read with CP1 and the Treasury’s two consultation documents, 

published on 11 January 2013 and 13 March 2013 respectively. 2 

Structure of this CP 

1.3 Chapter 2 explains what progress has been made on EU measures to implement the 

Directive since we published CP1. It also sets out how we propose to give guidance about 

the scope of the AIFMD and explains the current state of our thinking about delegation by 

alternative investment fund managers (AIFMs). 

1.4 Chapter 3 proposes modifications to some existing organisational and conduct of business rules 

that will affect full-scope UK AIFMs. It also explains how we propose to amend our rules and 

guidance to implement the Treasury’s proposals for specialised regimes for smaller AIFMs. 

1.5 Chapter 4 supplements the proposals for prudential rules and guidance set out in CP1 with 

some further consequential rules, including the proposed prudential regime for small 

authorised UK AIFMs. 

1 CP12/32, ‘Implementation of the Alternative Investment Fund Managers Directive Part 1’, November 2012, 

www.fsa.gov.uk/static/pubs/cp/cp12-32.pdf. 

2 These consultation papers can be found at www.hm-treasury.gov.uk/consult_fullindex.htm. 




Annex X 

1.6 Chapter 5 makes proposals for an appropriate degree of consumer redress by explaining 

which types of AIFM and depositary will be within the scope of the Financial Ombudsman 

Service (FOS), the Financial Services Compensation Scheme (FSCS), or both. 

1.7 Chapter 6 supplements the proposals in CP1 concerning depositaries. We explain how our 

existing rules and guidance for the protection of client assets will apply to some types of 

depositary. 

1.8 Chapter 7 explains our approach to marketing under the Directive and how AIFMs may 

exercise single market passporting rights. It also describes our approach to registering funds 

being marketed through national private placement, and to approving non-UK AIFs as 

recognised schemes that can be marketed to the general public. 

1.9 Chapter 8 sets out our proposals for charging fees to entities that will be regulated under 

the AIFMD to cover FCA costs in regulating them. 

1.10 We have assumed that readers of this paper are familiar with the content of CP1, so for 

consistency purposes we have used the same terminology. Where new terms are used, these 

are defined and have been added to the list of abbreviations at the beginning of this paper. 

Revised approach to consultation 

Non-EEA AIFM and AIF passport provisions 

1.11 A further consultation paper (CP3) will be issued by the FCA after 1 April 2013 when it 

assumes its legal powers as one of the successor bodies to the FSA. This paper will cover: 

• consequential changes to bring the rest of what will be the FCA Handbook into line 

with the rules consulted on in CP1 and CP2; and 

• amendments to the FCA Handbook necessary to transpose articles 35 and 37 to 41 of 

the Directive, to provide for the marketing and management passports for non-EEA 

AIFMs and non-EEA AIFs. 

1.12 These passport provisions will not become operative in Member States until the European 

Commission (Commission) adopts a delegated act to trigger their operation. 3 We intend to 

transpose these requirements through a formal copy-out of the Level 1 Directive provisions, 

so that the UK Authorities can fully meet their implementation obligations. 4 

3 Article 67 AIFMD. The delegated act will switch on these non-EEA passports only if the ESMA opinion under Article 67(1) AIFMD is 

positive and supports their introduction. 

4 In 2015/2016, the non-EEA passport provisions in the Level 1 Directive will be complemented by Commission implementing measures 

and ESMA binding technical standards. 




1.13 Non-EEA AIFMs, provided they have notified themselves to the FCA and they comply with 

the transparency requirements in the Directive and the Level 2 Regulation 5 , will be 

permitted to manage and/or market EEA and non-EEA AIFs in the UK from 22 July 2013. 

They will not, however, have a passport to market freely across the EEA. 

1.14 Where non-EEA AIFMs manage and/or market private equity AIFs in the UK, they will also 

need to comply with the bespoke reporting provisions in Article 26(1) of the AIFMD. 

March 2013 

Authorised fund provisions 

1.15 As explained in CP1, we intend to replace the COLL sourcebook with equivalent chapters 

in FUND, so that FUND will become the main sourcebook for AIFMs and UCITS 

management companies. However, the work involved in achieving this aim has proved 

greater than expected, so we are not able to consult on draft Handbook text for all of 

FUND in this paper. We think it is important to focus our efforts at this stage on putting in 

place the rules that will affect all AIFMs. 

1.16 Instead, we propose to retain all of COLL in the short term after 22 July 2013, alongside 

the chapters of FUND that are necessary to implement AIFMD. We aim to consult 

separately, no later than Q3 2013, on the text of the chapters to replace COLL. This will 

enable us to consider more thoroughly what changes to the authorised funds regime may be 

necessary or desirable to adapt it to the new Directive. 

1.17 We appreciate that managers of non-UCITS retail schemes (NURS) and qualified investor 

schemes (QIS) that become authorised as AIFMs after July 2013 will need to consider the 

contents of both sourcebooks to determine their regulatory obligations. We believe there is 

little in COLL that conflicts directly with AIFMD, although there are areas of overlap or 

ambiguity. We propose to address this by a rule which specifies that, in the event of any 

conflict between a rule implementing AIFMD and another rule in the Handbook that 

applies to AIFMs, the Directive requirement prevails because of the primacy of European 

law. 

1.18 This arrangement may cause some inconvenience in the short term to managers of 

authorised funds, and we will work with stakeholders to resolve any difficulties caused by 

inconsistencies or ambiguities. 

Private equity provisions 

1.19 One of the issues in CP1 Annex 6 not covered in this paper concerns questions of 

interpretation and guidance relating to the Directive’s provisions applicable to AIFMs of 

private equity funds. The Level 1 provisions are being transposed by Treasury regulations – 

principally by the ‘copy-out’ mechanism – and these regulations have recently been 

5 Commission delegated regulation (EU) No …/.. of 19.12.2012. supplementing Directive 2011/61/EU of the European Parliament 

and of the Council with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision 

http://ec.europa.eu/internal_market/investment/docs/20121219-directive/delegated-act_en.pdf. 




consulted on in the Treasury’s first consultation document. There are neither Level 2 

measures nor ESMA guidelines that address these provisions. 

Annex X 

1.20 We are aware of the questions raised by some stakeholders on some of the private equity 

provisions. The FCA will consider issuing guidance at a later stage if required; for example, in 

relation to the scope and interpretation of some of the asset-stripping provisions in Article 30 

of the Directive. 

Next steps 

1.21 Please send us your responses by Friday 10 May 2013. Once again, this is a shorter 

consultation period than usual, given the need for us to finalise these additional rules and 

guidance ahead of the impending transposition deadline of 22 July 2013. 

1.22 We propose to issue a full AIFMD policy statement in June, but we intend to confirm some 

of our final policy positions before that date to give affected firms as much time as possible 

to continue their AIFMD preparation. We expect these earlier statements to cover whether 

we will receive potential AIFM authorisation applications and variations of permission 

before 22 July 2013. They may also include our final decisions in relation to the prudential 

rules for AIFMs and the requirements for AIF depositaries. 

Who should read this CP? 

1.23 As with our first consultation paper, this paper will interest: 

• investors (retail and professional); 

• fund managers, including managers of UCITS schemes; 

• depositaries; 

• MiFID firms; 

• non-UK AIFMs wishing to market and/or manage EEA or non-EEA funds in the UK, 

or elsewhere in the EEA; 

• listed and unlisted investment companies not currently subject to FSMA authorisation; 

• service providers to the fund management industry, such as valuers, administrators and 

outsourcing specialists; 

• representative trade bodies; and 

• business advisers and consultants, and other advisers involved, serving in or linked to 

the fund management industry in the UK. 




1.24 Although UCITS firms and UCITS investment firms that do not manage AIFs are not 

within the scope of the AIFMD, chapter 4 of this paper will be of interest to them as we 

propose changes to the Handbook that will affect those firms. 

March 2013 

Key messages 

Consultation process 

Consultation timeline 

Our AIFMD consultation approach continues to be carried out in stages given 

European and other dependencies. This paper covers many of the issues that 

we were unable to address in CP1. Firms affected by AIFMD should continue to 

prepare to be ‘AIFMD ready’, especially those firms that intend to carry on the 

regulated activity of managing AIFs for the first time after 22 July 2013. 

Transitional provisions 

We propose to permit UK firms managing and/or marketing AIFs in the UK to 

make full use of the 12-month transitional period whether these AIFMs become 

authorised or registered. This is in line with the Treasury’s position on the 

interpretation of the Directive’s transitional provisions in Article 61(1), as set 

out in its first consultation document, and applies irrespective of whether the 

AIF concerned is an EEA or non-EEA AIF. Firms carrying on management of AIFs 

from an establishment in the UK will have until 21 July 2014 to submit an 

application to become a UK-registered or UK-authorised AIFM, or to vary their 

Part 4A permission. 

Supervisory assessment of delegation arrangements 

As stated in CP1, we intend to assess any delegation arrangements on a case-bycase 

basis in a robust and flexible way, while taking account of the Level 1 and 

final Level 2 requirements. The Level 2 Regulation issued by the Commission on 

19 December 2012 is nearing the end of the 3-month period during which the 

European Council and European Parliament could object to it. We think any such 

objection is unlikely. 

During the transitional period from 22 July 2013 to 21 July 2014 we do not 

propose to make supervisory assessments of a firm’s delegation arrangements, 

until the firm applies for authorisation or a variation of permission (VoP) to 

become an AIFM. 




Submission of AIFM applications and variations of permission before 

22 July 2013 

We appreciate that firms now operating on a cross-border basis are seeking 

certainty that they will be able to continue to do so from 22 July 2013. We 

are working on being in a position to receive applications or VoPs before that 

date, from firms that need to be able to exercise single market rights in order to 

continue existing business without interruption. We would like to draw the attention 

of potentially affected firms to our website page http://www.fsa.gov.uk/ 

fsa/about/what/international/aifmd. We will confirm our intentions after 1 April 

2013 once we have become the FCA. 

CP closing date 

You have eight weeks to send us your responses, by 10 May 2013. 

CONSUMERS 

AIFMD is mainly directed at firms offering asset management services to 

professional investors. Many of these firms do not promote their products or 

services to consumers more generally. However, given that one of the main 

objectives of AIFMD is to achieve an appropriate level of investor protection for 

retail, professional and institutional investors, our proposals may be of wider 

interest to consumers. 

Annex X 


2 

Implementation 

March 2013 



2.1 This chapter explains what progress has been made on EU measures to implement the Directive 

since we published CP1. It also sets out how we propose to give guidance about the scope of 

the AIFMD and explains the current state of our thinking about delegation by AIFMs. 

EU developments since November 2012 

AIFMD Level 2 Regulation 

2.2 When we published CP1 in November 2012, the Commission had not issued its delegated 

regulation on the implementing measures that supplement the Level 1 Directive (the Level 2 

Regulation). The text of the Level 2 Regulation was issued by the Commission on 19 

December 2012. 

2.3 The Level 2 Regulation will enter into force provided that neither the European Parliament 

nor the Council of the EU has objected to it during the three-month objection period 

ending on 18 March 2013. At the time of publication of this paper we do not expect any 

such objections to be made. 6 The Level 2 Regulation should be published in the EU’s 

Official Journal (OJ) shortly after 19 March 2013 and should come into force 20 days 

later. It will be directly applicable in EU Member States’ legal systems from 22 July 2013, 

subject to the transitional provisions of the Level 1 Directive. 

ESMA 

Remuneration guidelines 

2.4 During 2012, ESMA developed guidelines on remuneration policies for AIFMs, as required 

under the Level 1 Directive. Competent authorities are required to comply with these 

guidelines or explain why they will not do so. On 11 February 2013, ESMA published the 

6 Given that the Council or European Parliament may only object to the Level 2 Regulation as a package of measures, we consider this 

unlikely at this stage. 




Annex X 

text of its final report on the remuneration guidelines. 7 The guidelines will formally come 

into effect once a version has been published by ESMA in each official language of the EU. 

2.5 Following our agreement with the Treasury, smaller AIFMs managing AIFs below the 

thresholds for assets under management (AUM) 8 will not need to comply with the 

requirements and guidelines on remuneration policies for AIFMs. 

Draft regulatory technical standard on types of AIFM 

2.6 Since we published CP1, ESMA has issued two consultations on implementing measures 

concerning types of AIFM. 9 This work will help prospective AIFMs to determine whether 

the entities they manage fulfil all the criteria for the definition of an AIF. 10 ESMA has 

proposed draft regulatory technical standards (RTS) for AIFMs that manage open-ended 

and closed-ended AIFs. The consultation period closed in late January 2013 and ESMA is 

currently considering what amendments should be made to the proposal in the light of 

feedback received. 

2.7 Once ESMA issues its final version of this draft RTS to the Commission, it will be adopted 

and published in the OJ and will be directly applicable in Member States’ jurisdictions. We 

expect the Commission to do this in Q2 2013. 

Guidelines on key concepts of AIFMD 

2.8 The second of the ESMA consultations on types of AIFM (guidelines on key concepts of the 

AIFMD) relates to a number of other matters that may determine types of AIFM. 

2.9 As with the RTS, ESMA is considering what amendments should be made to the proposed 

guidelines in the light of feedback received to the consultation. We expect the final version 

of the guidelines to be approved and published before 22 July 2013. 

Supervisory cooperation arrangements 

2.10 As noted in CP1, the FCA must have supervisory cooperation arrangements in place with 

the regulatory authorities of non-EEA jurisdictions. 11 These arrangements, taking the form 

of a bilateral Memorandum of Understanding (MoU), must be compliant with the Level 1 

Directive, the Level 2 Regulation and ESMA guidelines. 12 They will cover (for example) 

delegation of investment management to non-EEA entities and marketing of non-EEA AIFs 

in the UK. 

7 ESMA Final Report, Guidelines on sound remuneration policies under AIFMD, February 2013 

http://www.esma.europa.eu/system/files/2013-201.pdf. 

8 See Article 3(2) AIFMD. 

9 ESMA Consultation Paper, Draft regulatory technical standards on types of AIFMs, December 2012, http://www.esma.europa.eu/ 

system/files/2012-844.pdf; ESMA Consultation Paper, Guidelines on key concepts of the AIFMD, December 2012, http://www.esma. 

europa.eu/system/files/2012-845.pdf. 

10 ESMA is required to do this under Article 4(4) of AIFMD. 

11 These are required under Articles 20, 21, 34, 35, 36, 37-41 and 42 AIFMD. 

12 Each MoU agreed between ESMA and a non-EEA competent authority will constitute ESMA guidelines. 




2.11 Negotiating these MoUs, for signature by EEA competent authorities, has been a key part 

of ESMA’s 2012 and 2013 work programmes. ESMA’s plans are for these MoUs to be 

available for EEA competent authorities to sign with non-EEA jurisdictions important to 

the UK and other Member States, ahead of the 22 July 2013 implementation date. 

March 2013 

AIFM reporting guidelines 

2.12 ESMA is developing guidelines on AIFMD reporting obligations. These guidelines are aimed at 

both EEA competent authorities – to promote supervisory convergence on AIFMD reporting 

requirements – and EEA AIFMs, to help them meet their reporting obligations. 13 Reporting will 

commence in January 2014 for AIFMs that have been authorised by that point. 

2.13 ESMA expects to publish a consultation paper on these proposed guidelines in the near 

future. The paper is likely to cover: 

• guidance on the specific data to be reported in accordance with the templates in Annex 

IV of the Level 2 Regulation; 

• reporting periods and how these might align with the calendar year; 

• reporting for specific types of AIF, such as feeder AIFs and umbrella AIFs; 

• IT and operational aspects, such as how types of AIFM and AIF should be identified in 

ESMA’s IT structure, which is being built to interact with the individual IT systems of 

each EEA competent authority. 

2.14 We encourage firms and other stakeholders to respond to ESMA’s consultation paper once 

it is published. 

2.15 The FCA will consider how to incorporate these texts into the Handbook once they have 

been issued in final form. 

Further statements on scope and the AIFMD regulatory perimeter 

2.16 We recognise the need to explain what we believe is and is not within the scope of the 

Directive. As we have explained, the work being carried out by ESMA on types of AIF and 

AIFM will determine what we can say about some aspects of the scope. However, there are 

a number of areas on which we can provide guidance. 

2.17 In this paper we propose additions and changes to our perimeter guidance manual (PERG) 

in the Handbook, building on the preliminary statements about scope that we made in 

Chapter 3 of CP1. This guidance covers key elements of the definition of an AIF such ‘as 

capital-raising’, ‘defined investment policy’ and what is a collective investment undertaking. 

13 See CP1 paragraphs 6.25 to 6.39 for details. 




2.18 Our proposed PERG guidance will also cover: 

• examples of schemes that we think are AIFs, such as hedge funds, commodity funds 

and real estate funds; 

Annex X 

• arrangements that are not likely to be considered AIFs, including but not limited to 

timeshare schemes, pension schemes, pension CIFs and employee participation schemes 

and carried interest vehicles; 

• entities for which we make no general presumption either way and which we will 

consider according to the facts of each case, such as UK REITs; 

• joint ventures, family investment vehicles, co-investment vehicles, the Directive’s 

holding company exclusion 14 , and what we think constitute investment compartments 

of AIFs; and 

• more general points, such as whether our interpretation of a collective investment 

undertaking applies to MiFID and what is meant by ‘managing an AIF’. 

2.19 AIFMD is maximum harmonising, so we have developed this proposed PERG guidance 

with reference to ESMA’s proposed RTS and guidelines on key concepts of AIFMD 

described above. We aim to finalise this guidance once the text of those RTS and guidelines 

is settled. 

Q1: Do you have any comments on the proposed PERG guidance? 

Additional statements on delegation by AIFMs and ‘letterbox entity’ 

2.20 In CP1 we said that we would give firms a further indication as to how we propose to 

exercise our supervisory judgment on AIFM delegation arrangements, particularly 

concerning the core investment management activities of portfolio management and risk 

management. This section should therefore be read as supplementing our initial position in 

paragraphs 7.52 to 7.63 of CP1 where we explained what is meant by ‘letterbox entity’. 

2.21 The Level 2 Regulation contains detailed, indicative but non-exhaustive criteria that EEA 

competent authorities should take into account when assessing whether authorised AIFMs 

in their jurisdictions comply with all applicable delegation requirements for core and noncore 

AIFM activities. 

2.22 The outcome that the Level 1 and Level 2 delegation requirements seek to ensure is that, 

where the core AIFM functions of portfolio management and risk management are 

proposed to be delegated, a UK-authorised AIFM does not do so to the extent that it could 

be considered by the FCA to have become a ‘letterbox entity’. 

14 Article 4(o) AIFMD. 




2.23 The ‘letterbox entity’ test has been the subject of considerable political and technical debate 

and, as expected, the text of Article 82 of the Level 2 Regulation goes further than the 

factors specified by ESMA in its technical advice to the Commission in 2011. 

2.24 The FCA will take account of the criteria in Article 82 of the Level 2 Regulation when 

assessing arrangements proposed by a full-scope UK AIFM for the delegation of risk and 

portfolio management. We expect to undertake a proportionate supervisory assessment on 

whether a proposed delegation arrangement would lead to a ‘letterbox entity’. This 

assessment will be more qualitative than quantitative. This means we will not automatically 

presume that a UK-authorised AIFM is a ‘letterbox entity’ merely because a percentage 

threshold has been reached on the investment management tasks proposed to be delegated, 

versus those that are retained by the AIFM. The following paragraphs describe some of the 

elements of a qualitative assessment. 

2.25 We would note that senior management and the governing body, or other supervisory function 

of the AIFM 15 , must exercise effective oversight and control over risk and portfolio 

management. This is the case whether the investment management activities are retained 

in-house, delegated to another firm in the same corporate group, or delegated to an independent 

third-party service provider, irrespective of the service provider’s geographic location. 

2.26 Our assessment of delegate risk will form part of our wider assessment to ensure that those 

responsible for the activities of an AIFM monitor and manage overall risk appropriately. 

This involves the AIFM carrying out suitable due diligence for a prospective delegate, and 

supervising them in an active rather than passive way on a continuing basis. We will look 

for evidence that there is no improper delegation resulting from an abdication of 

responsibility by senior management and the governing body. 

2.27 Concerning intra-group delegations, regardless of the location of the proposed delegate, we 

will assess whether the correct entity holds the required authorisation. Where such entities 

are located in third countries, we will cooperate with the authority that has jurisdiction 

over that entity under the terms of the MoU. 16 

2.28 Recognising that the delegation requirements affect a broad range of AIFMs, we will take 

account of the objective reasons and commercial imperatives for delegation, with reference 

also to specific, real-world operating models. We will consider the nature of the AIFM; for 

example, whether it is an external or internal manager of AIFs. We will also review 

delegation structures, with reference to our statutory duty to carry out our regulatory 

functions in a way that promotes competition, so far as this is compatible with our other 

statutory objectives. 

15 Article 60 of the Level 2 Regulation. 

16 These are the model MoUs negotiated by ESMA for signature by EU competent authorities. 

March 2013 




Delegation arrangements during the transitional period 

Annex X 

2.29 We will not review or supervise existing delegation arrangements – whether in relation to 

the ‘letterbox entity’ test or the delegation requirements of the Directive more generally – 

where firms are managing AIFs before 22 July 2013 and these firms are taking advantage 

of the 12-month transitional period. 

2.30 We will need to review existing and proposed delegation arrangements of those firms 

wishing to be authorised, or to vary their permission, from 22 July 2013. 

2.31 From 22 July 2014 we will review and supervise both existing and proposed delegation 

arrangements, since all UK firms managing AIFs from that date must be UK-authorised or 

UK-registered AIFMs so as not to breach the general prohibition. 17 From that date, a 

UK-authorised AIFM must satisfy, or continue to satisfy, the threshold conditions for 

managing the AIFs for which it holds a Part 4A permission. 18 

2.32 For firms that do not benefit from the transitional period, we will review their delegation 

arrangements as part of their application for authorisation as an AIFM. 

Future European measures on ‘letterbox entity’ 

2.33 The Commission will monitor how EEA competent authorities supervise AIFM delegation 

requirements and how the ‘letterbox entity’ test is being applied in the AIFM sector. 19 In 

2015, the Commission will consider whether to adopt any additional measures that specify 

the conditions under which a ‘letterbox entity’ should be assessed. 20 

2.34 ESMA guidelines are a means of promoting supervisory convergence among EEA 

competent authorities. In the Level 2 Regulation, the Commission has expressly recognised 

ESMA’s power to issue guidelines to ensure that EEA competent authorities assess AIFM 

delegation structures consistently. 21 ESMA’s 2013 work programme does not currently 

include plans to develop guidelines in this area. 

FCA guidance on ‘letterbox entity’ 

2.35 We do not currently plan to issue any guidance on how we will assess compliance with the 

AIFMD’s delegation requirements, including the ‘letterbox entity’ test. 22 As noted above, we 

will review delegation structures on a case-by-case basis, examining an AIFM’s compliance 

with the Directive’s risk management requirements and the efficacy of its governance by the 

firm’s governing body, and control by the firm’s senior management and supervisory 

17 Article 19 FSMA. 

18 See COND 1 of FSA Handbook. 

19 Recital 93 and Article 82(2) of the Level 2 Regulation. 

20 Recital 92 and Article 82(2) of the Level 2 Regulation. 

21 Article 82(3) Level 2 Regulation and see Recital 26 and Articles 8(1)(a),(e), 8(2)(c) and article 16 of the ESMA Regulation. 

22 See however Q3.8 of PERG 16.3 on a related point. 


March 2013 



function, where relevant. 23 Firms may make individual requests for guidance under SUP 9.2 

of the Handbook. 24 

2.36 In time, after the implementation of the AIFMD, the FCA may consider developing formal 

guidance. Any such guidance will need to take account of any further developments at 

European level, including whether the Commission has adopted additional implementing 

measures, and whether ESMA has developed any relevant guidelines. 

General approach to transitional provisions 

2.37 In line with the Treasury’s position on the interpretation of the Directive’s transitional 

provisions in article 61(1), we confirm the statement we made in CP1 that we propose to 

permit UK AIFMs managing and/or marketing AIFs in the UK to make full use of the 

12-month transitional period to 21 July 2014. All firms within the scope of the Directive 

must comply fully with its requirements by that date, whether or not their application to 

the FCA for the relevant Part IV permission has been determined by then. We propose to 

include transitional provisions in all relevant sourcebooks of the FCA Handbook to allow 

for these arrangements. 

Revised direct costs of implementation to be incurred by FSA/FCA 

2.38 In the CBA to CP1 our initial estimate of the core costs of implementing AIFMD, over and 

above those which are business-as-usual, was £5m. This estimate was intended as a marker 

until the FSA programme and business analyst teams had more fully scoped one-off AIFMD 

implementation costs. This figure now stands at around £13.4m but takes fuller account of: 

• scope changes given the extent of AIFMD regulation and categories of firms affected; 

• costs of bespoke IT changes to FSA systems (taking account also of the transition to 

the FCA); 

• necessary operational changes to core regulatory processes such as AIFM authorisation, 

registration, supervision and reporting. The latter includes costs of mandatory reporting 

of AIFMD data by the FCA to ESMA; and 

• increased use of specialist project resources for other operational aspects of AIFMD 

implementation. 

23 See for example Article 60 of the Level 2 Regulation. 

24 See SUP 9.2.1G more generally. 




Miscellaneous matters 

Annex X 

2.39 The Level 2 Regulation sets out certain reporting requirements which apply directly to 

AIFMs. The Regulation does not specify the end dates of the relevant reporting periods, or 

the reporting periods for sub-threshold AIFMs – these are for competent authorities to 

specify. We propose that sub-threshold AIFMs, whether they are authorised or registered, 

should report annually. We propose that the reporting period end dates for all AIFMs 

should be those set out in the table below. These rules will be set out in SUP 16.18. 

Reporting period end dates for all AIFMs 

Reporting frequency Reporting period end date 

Annually 31 December 

Biannually 30 June, 31 December 

Quarterly 31 March, 30 June, 30 September, 31 December 

Q2: Do you agree with the proposed reporting frequency for subthreshold 

AIFMs and the proposed reporting period end dates 

for all AIFMs? 




3 

Operating requirements for 

full-scope and sub-threshold 

AIFMs 

3.1 This chapter proposes modifications to some existing organisational and conduct of 

business rules that will affect full-scope UK AIFMs. It also explains how we propose to 

amend our rules and guidance to implement the Treasury’s proposals for specialised regimes 

for smaller AIFMs. 

March 2013 

Applying SYSC and COBS to full-scope UK AIFMs 

3.2 The AIFMD imposes specific requirements on the organisation and conduct of AIFMs, 

which will replace any equivalent rules currently applicable to authorised firms that become 

AIFMs. We must modify the SYSC and COBS sourcebooks to take account of these specific 

AIFMD requirements. In CP1 we began this process by proposing some additional rules 

and guidance to implement new elements of the Directive. 

3.3 Since then, we have reviewed existing requirements in SYSC and COBS against the final 

draft text of the Level 2 Regulation to determine whether they are compatible. Where 

existing requirements are not compatible, and where they relate to activities (within the 

scope of the Directive) that full-scope UK AIFMs are performing for professional investors, 

we must modify or entirely disapply them. 

3.4 For currently authorised firms that will become AIFMs, the effect of these changes will 

depend on which activities they currently perform. Some of these firms are already subject 

to the organisational requirements of other EU Directives such as MiFID (we refer to these 

as ‘common platform firms’). Other firms, such as operators of unregulated collective 

investment schemes (UCIS), are currently outside the scope of European legislation and 




Annex X 

comply with different standards. But all of them will move to a uniform set of requirements 

under AIFMD when dealing with professional investors. 

Systems and controls requirements 

3.5 Most of the organisational requirements set out in Chapters 4 to 10 of the SYSC 

sourcebook will not apply to full-scope UK AIFMs. We propose to make a few exceptions, 

by applying certain parts of these chapters where they are outside the scope of the AIFMD 

and we think adequate investor protection measures need to be in place. An example of this 

is SYSC 6.3, concerning the prevention of financial crime. 25 We also propose to apply to 

AIFMs some helpful pieces of guidance which either describe in more detail how we would 

expect firms to fulfil an obligation, or are purely explanatory (so they do not direct firms to 

do, or refrain from doing, something). 

3.6 For full-scope UK AIFMs of authorised AIFs (which can be marketed to retail investors, 

within the meaning of the AIFMD), we propose to retain some additional requirements 

which do not conflict with AIFMD. For example, the record-keeping requirements in SYSC 

9.1.1R and 9.1.2R will still apply to most types of records that the firm keeps. We will 

introduce in the table in SYSC 1 Annex 1 an additional column (Column A++) specifying 

how chapters 4 to 10 apply to a full-scope UK AIFM of authorised AIFs. 

3.7 Where an AIFM is also performing any of the activities permitted in addition to the 

management of AIFs, 26 it will be subject to specific requirements set out in column A+ of 

SYSC 1 Annex 1. These requirements are the same as those applying to a UCITS 

management company when it carries out ‘MiFID-type’ activities. 

3.8 For a firm that is currently authorised under MiFID (and so is a common platform firm), 

becoming a full-scope UK AIFM means that most of the provisions in chapters 4 to 10 that 

applied to it as rules will either cease to apply, or will apply only as guidance. For a firm 

that is currently authorised but is not a common platform firm, such as a collective 

investment scheme (CIS) operator, most of the provisions in these chapters already apply 

only as guidance. 

Conduct of business requirements 

3.9 To align COBS with AIFMD requirements, we propose to modify the specialist regime for 

operators of collective investment schemes set out in COBS 18.5 (Operators of CIS, UCITS 

management companies and AIFMs). This chapter currently contains a table (COBS 

18.5.2R) specifying which COBS rules apply to operators of CIS when carrying on scheme 

management activity. This is to ensure the operator’s duties to the fund as its client are 

maintained where they give protection to the underlying investors (e.g. the rules in COBS 

25 The other exceptions are listed in draft SYSC 1 Annex 1, 2.6B. 

26 As permitted under Article 6(4) and transposed in draft rule FUND 1.4.3R (individual portfolio management, investment advice, 

safeguarding of assets, or receipt and transmission of orders). 


March 2013 



11.6 on using dealing commission when buying and selling financial assets in the 

fund’s portfolio). 

3.10 We propose to modify this table to take account of its application to both full-scope UK 

AIFMs and sub-threshold AIFMs. For full-scope AIFMs, certain rules such as COBS 2.3 

concerning inducements will be disapplied, because the Directive imposes specific 

requirements in the same area. A new rule (COBS 18.5.4A R) will disapply the best 

execution rules in COBS 11.2 where they duplicate specific AIFMD requirements in the 

Level 2 Regulation, while retaining some existing requirements that we believe are 

permitted under AIFMD. 

3.11 Rules about transparency in COBS 18.5 will no longer apply to full-scope UK AIFMs when 

dealing with professional investors. They will instead be subject to FUND 3.2 and 3.3. 

However, we propose to apply additional transparency requirements to full-scope UK 

AIFMs when they market an unauthorised AIF to a retail client. A new rule (COBS 

18.5.10A R) requires the disclosure to a retail client of certain items of information not 

specified in the AIFMD provisions. These are items of information which should currently 

be disclosed when units in an UCIS are marketed. There is no obligation on the AIFM to 

make these additional disclosures when marketing to professional investors. 

Q3: Do you agree with the proposed application of rules and 

guidance in SYSC and COBS to full-scope AIFMs? Are there any 

other matters that should be addressed in these sourcebooks? 

Sub-threshold regimes 

3.12 The Treasury’s first consultation document explained how the UK authorities intend to 

implement a modified regime for AIFMs that have AUM below certain thresholds specified 

in Article 3 of the Directive. The proposal is for three categories of ‘sub-threshold’ manager: 

1) Managers of authorised funds, which will be subject to both existing regulatory 

requirements and the majority of the new Directive requirements. 

2) Managers of UCIS and external managers appointed by AIFs that are not CIS, which 

will be subject to existing regulatory requirements but will have only very limited 

additional obligations under the Directive, mainly relating to reporting. 

3) Internally-managed closed-ended investment companies (i.e. where the company is 

its own AIFM), which will be subject to a de minimis registration-only regime under 

FSMA, in addition to obligations arising if they have (or seek) a UK listing. 

3.13 The first two categories will be authorised persons under FSMA, the third will not. 

Authorised persons will need to obtain a Part 4A permission to carry on the regulated 

activity of managing an AIF. But all three categories of firm will be regarded as ‘registered’ 




Annex X 

for the purpose of the Directive, so they are not subject to its full requirements or to the 

Level 2 Regulation. 27 They cannot benefit from the passporting rights the Directive confers, 

unless they opt to become a full-scope UK AIFM. 

3.14 The draft Treasury AIFM Regulations refer to categories 1 and 2 as ‘small authorised UK 

AIFMs’ and to category 3 as ‘small registered UK AIFMs’. We propose to use the same 

terminology in the Handbook Glossary. 

Sub-threshold managers of authorised AIFs 

3.15 The first Treasury consultation explains that the proposal is to treat sub-threshold AIFMs 

of UK-authorised funds as being subject generally to the same requirements as full-scope 

UK AIFMs, but to disapply the specific requirements of the Level 1 Directive and the Level 

2 Regulation on: 

• the assessment of what constitutes a ‘letterbox entity’ when an AIFM delegates 

its functions; 

• remuneration of individuals; and 

• transparency (pre-sale information, periodic reporting to investors, and reporting to the 

FCA and other competent authorities). 

3.16 We intend to apply all other relevant AIFMD requirements to sub-threshold managers of 

authorised AIFs. We also intend to apply the same modified SYSC and COBS rules that will 

apply to full-scope UK AIFMs, as described in the preceding section. 

3.17 To do this, we will modify the application provision of each rule in FUND 3 that 

transposes a Level 1 Directive requirement. So in this paper we show modifications to some 

of the rules we consulted on in CP1. To apply the relevant parts of the Level 2 Regulation 

to these sub-threshold firms, we need to reproduce them as Handbook rules (because they 

do not apply directly in law to sub-threshold firms). We will do this by including an 

appendix to FUND that lists each measure applying as a rule. 

3.18 We also propose that a small authorised UK AIFM of an authorised AIF should be subject 

to the same prudential requirements as a full-scope UK AIFM, including the initial capital 

and own funds requirements. 

Q4: Do you agree that our rules and guidance will correctly 

implement the Treasury’s proposed regime for small 

authorised UK AIFMs of authorised AIFs? 

27 Except for those parts relating to Article 3 of the Level 1 Directive. 


March 2013 

Sub-threshold managers of unauthorised AIFs 



3.19 The second category of sub-threshold AIFMs groups together firms managing UCIS and 

firms managing other types of AIF that are not CIS (such as a firm appointed by a closedended 

investment company to manage its assets). We refer to these as AIFMs of 

‘unauthorised AIFs’. Managers of non-CIS AIFs will typically be authorised under MiFID 

where the AIF invests in financial instruments. 

3.20 Our proposal is to bring both groups under the rules for operators of UCIS, which will 

result in changes to some of the requirements for firms that are currently operating under 

MiFID. The result is that many of the organisational requirements set out in SYSC that now 

apply to MiFID firms as rules will instead apply to them as guidance. 

3.21 There are a few SYSC rules applying to MiFID firms that we think should be retained, 

notably those requiring oversight by two suitably experienced persons (SYSC 4.2.2R to 

4.2.5G) and the record-keeping requirements (SYSC 9.1.2R and 9.1.3R). We intend to 

consider whether in future these rules should apply to all small authorised UK AIFMs of 

unauthorised AIFs, which will require us to undertake further work and cost benefit 

analysis. In the meantime, we propose to introduce a transitional provision that would keep 

these specific rules in place for firms that convert from being common platform firms to 

small authorised AIFMs of unauthorised AIFs, for a period of up to two years until the end 

of July 2015. Before then we expect to bring further proposals forward. 

3.22 The same COBS rules will apply to all small authorised UK AIFMs of unauthorised AIFs. 

3.23 The table in COBS 18.5 will be amended to contain a column showing the application of 

COBS rules to such firms when they carry on scheme management activity. In practice, for 

operators of UCIS that come into this category, COBS rules will continue to apply as they 

do now. Common platform firms carrying on individual portfolio management for a client 

will, if they come into this category of AIFM, be brought within the scope of COBS 18.5 

because they will instead be carrying on collective portfolio management. This will mean 

that much of the rest of COBS will be disapplied in relation to the AIFM’s management of 

the AIF itself. 

3.24 COBS 18.5 also sets out transparency requirements for UCIS, both in terms of pre-sale 

information to be made available to clients and information to be reported to them 

periodically. These rules will remain in place for small authorised UK AIFMs of UCIS; 28 any 

firms in this category that are currently subject to the client reporting provisions in COBS 

16.3 continue to follow those rules. 



authorised UK AIFMs of unauthorised AIFs? 

28 Small authorised UK AIFMs of AIF that are not CIS are excluded from the scope of COBS 18.5.5R to 18.5.18E. 




Application of SYSC and COBS to depositaries of AIFs 

Annex X 

3.25 As we explained in Chapter 9 of CP1, any UK firm authorised as a credit institution or a 

‘BIPRU 730K firm’ under MiFID can seek authorisation to act as the depositary of an AIF. 

These firms will be classified in SYSC as common platform firms and the rules set out in 

Column A of SYSC 1 Annex 1 will apply to their activities as a depositary. Firms that 

currently act as a trustee or depositary of an authorised fund will be subject to the same 

provisions in SYSC as now. 

3.26 We also set out in Chapter 9 of CP1 our proposals to allow other authorised persons to act 

as a ‘private equity AIF depositary’. If a common platform firm (for example, a firm that is 

authorised under MiFID but is not a BIPRU 730K firm) carries on this type of depositary 

activity, it will still be subject to the rules set out in Column A of SYSC 1 Annex 1 when 

doing so. All other types of firm, when acting as a depositary of this category of AIF, will 

be subject to the requirements under Column B of SYSC 1 Annex 1. 

3.27 COBS 18.7 (Depositaries) sets out which parts of COBS apply to a depositary when acting 

as such. It will apply in full to all types of firm authorised to act as depositaries, including 

private equity AIF depositaries. 




4 

Prudential requirements 

4.1 This chapter supplements the proposals for prudential rules and guidance set out in CP1 

with some further consequential rules, including the proposed prudential regime for small 

authorised UK AIFMs. 

4.2 In Chapter 5 of CP1 we proposed the prudential regime that will apply to full-scope UK 

AIFMs, including capital requirements, professional negligence risks, the liquid assets 

requirement, and reporting matters. We also covered certain changes to our prudential rules 

affecting UCITS firms and UCITS investment firms. 

4.3 In this consultation, we set out: 

March 2013 

• the proposed prudential regime for small authorised UK AIFMs; and 

• the consequential amendments that will be necessary to IPRU (INV) as a result of the 

implementation of AIFMD and the associated changes to regulated activities (including 

creating the regulated activities of managing an AIF, managing a UCITS, acting as a 

depositary of an AIF and acting as a depositary of a UCITS and the amendments to the 

activity of operating a CIS). 

4.4 The major change we proposed in CP1 was the creation of a new Chapter 7 of IPRU (INV), 

to include the requirements for collective portfolio management (CPM) firms and internally 

managed AIFs. However, on further consideration we think it would be better to move these 

requirements to a new Chapter 11 of IPRU (INV) and we will renumber them accordingly in 

the final version to be published in the Policy Statement. 29 

4.5 As explained in Chapter 3 of this paper, we propose to apply the prudential regime for full 

scope UK AIFMs to small authorised UK AIFMs of authorised AIFs. We have done this by 

changing the definitions of ‘CPM firm’ and ‘CPMI firm’, which has the effect of extending 

the application of IPRU (INV) and GENPRU / BIPRU respectively to these small authorised 

UK AIFMs. It also means that such firms must submit the relevant financial reporting 

forms that we described in paragraphs 5.36 to 5.41 of CP1. 

29 Chapter 7 was used before (until 31 December 2006) for UCITS firms and UCITS investment firms. Using it again for a different 

purpose might limit the effectiveness of the ‘time travel’ functionality of the online Handbook. 




4.6 We do not intend to make any changes to the prudential regime for small authorised UK 

AIFMs of unauthorised AIFs, or to the operators of CIS which are not carrying out the 

activities of managing an AIF or managing a UCITS. 

Annex X 

4.7 As a UCITS firm is included in the definition of a CPM firm, the requirements applicable to 

such a firm will all be set out in IPRU (INV) Chapter 11. UPRU will no longer be required so 

we propose to delete it. For a UCITS firm that is authorised before 22 July 2013, this change 

will be effective from 22 July 2014 or from the date it becomes a UK AIFM, if earlier. A firm 

that becomes authorised on or after 22 July 2013 will be subject to IPRU (INV) Chapter 11 

from the date of its authorisation. This will result in some consequential changes to the 

Handbook, including in relation to the Glossary terms that we consulted on in CP1. 

4.8 We have reconsidered the proposed changes to the Glossary definition of ‘funds under 

management’ that we consulted on in CP1, in the light of the issued text of the Level 2 

Regulation. We now propose further technical changes to the definition which is shown in 

the instrument in this paper. 

4.9 The table in Annex 4 summarises how the prudential rules will apply to managers within 

the scope of the AIFMD or the UCITS Directive. It includes the impact of the rules we have 

proposed in both this paper and CP1. It does not form part of the Handbook and is 

included here for information only. The table is a matrix and matches the type of fund 

manager (i.e. whether it is above or below the AIFMD Article 3 AUM thresholds, or also 

undertakes additional MiFID activities) with the type of fund that it manages. The shading 

in the table indicates the categorisation of the firm in the proposed prudential regime and 

the relevant section of the rules that will apply. 

4.10 The consequential amendments that we propose to make to IPRU (INV) include 

the following: 

• Additional guidance in 2.1.7G which clarifies that an authorised professional 

firm cannot be a CPM firm or a CPMI firm, because of limitations in the AIFMD, 

UCITS Directive and FUND. And an APF that is a small authorised UK AIFM of an 

unauthorised AIF, the operator of a CIS or a depositary that is subject to IPRU (INV) 

will be subject to IPRU (INV) Chapter 5. 

• To delete certain rules in Tables 5.2.3(5)(a), (b) and (e) because they refer only to a firm 

that will be classified as a CPM firm or a CPMI firm, and such a firm will be subject to 

IPRU (INV) Chapter 11 or GENPRU / BIPRU respectively. 

• To add a line to Table 1.5G in Annex A to include LLP members’ capital as Tier 1 

capital under the provisions of Table 11.4. 

Q6: Do you agree with our proposed approaches to amending 

IPRU (INV) and deleting UPRU, as explained above? 


5 

Consumer redress: 

the FSCS and FOS 

March 2013 



5.1 This chapter makes proposals for an appropriate degree of consumer redress by explaining 

which types of AIFM and depositary will be within the scope of the Financial Ombudsman 

Service (FOS), the Financial Services Compensation Scheme (FSCS), or both. 

Background 

5.2 The FOS and the FSCS aim to protect consumers against failures by regulated firms. The 

FOS’s role is to resolve disputes between consumers and regulated firms quickly and 

informally, while the FSCS’s role is to compensate claimants where a regulated firm in 

default is unable to satisfy a claim. 

5.3 FOS awards are paid by the firm that has caused the consumer harm, while FSCS payments 

are funded by a levy on authorised firms in the UK. To not impose an undue funding burden 

on firms, the FSCS generally covers a narrower range of circumstances than the FOS. 30 

5.4 The FOS and the FSCS already cover the activities of FSA-authorised fund managers 

managing AIFs that are CIS, and will continue to do so. AIFMD affects the scope of 

regulation in three areas where we need to consider the appropriate scope of FSCS and 

FOS protection. These relate to: 

• investment companies; 

• fund depositaries; and 

• cross-border activities. 

5.5 The FSA and the FOS have joint responsibility for the rules setting out who is eligible to 

complain to the FOS. We are therefore consulting jointly with the FOS on the proposals 

30 The FOS covers a wider range of firms than the FSCS. In addition, the FOS makes decisions on the basis of what is ‘fair and 

reasonable’ while the FSCS can only pay out if there is a civil liability in law. 




below relating to the eligibility of investors to complain to the FOS about an investment 

company or depositary. 

Investment companies 

Annex X 

5.6 The AIFMD regulates managers of investment companies (as the latter become AIFs under 

UK implementation), whether the manager is internal or external to the company. 31 

Investment companies include listed investment companies, such as investment trusts and 

venture capital trusts, as well as unlisted investment companies. Historically, investment 

companies and CIS have had different regulatory treatments. 

5.7 Investment companies are not currently subject to FSA authorisation or registration, 

although they are subject to company law and, where listed, also to the UK Listing 

Authority’s Listing Rules. However, where they appoint an external asset manager, that 

manager is generally authorised by the FSA under MiFID. Under AIFMD implementation, 

either the investment company itself or an external manager will need to become the fund’s 

AIFM, and will need to be authorised or, in some cases, registered by the FCA. 

5.8 Investors cannot currently complain to the FOS or claim from the FSCS about an investment 

company itself. Where an investment company appoints a MiFID firm to manage the assets of 

the company, the MiFID firm would be within scope of both the FOS and FSCS; but, under the 

eligibility rules, it is unlikely that investors in the company would be able to complain to the 

FOS or claim to the FSCS about the MiFID manager. 32 Nevertheless, investors could complain 

to the FOS or claim from the FSCS about an adviser that had given unsuitable advice. 

5.9 In view of the extension in the scope of regulation under AIFMD, we have considered 

whether FOS and/or FSCS protection should be extended to allow investors in investment 

companies to complain to the FOS or claim to the FSCS about the AIFM. 

5.10 Having given due consideration, we do not propose to extend FOS or FSCS protection in 

this case. Investors in UK investment companies have the same rights as shareholders in 

other trading or holding companies set up under the Companies Act 2006. A shareholder 

would not usually expect to be compensated by the FOS or the FSCS for the 

mismanagement or failure of a company in which he or she had an equity holding. 

Q7: Do you agree that investors in investment companies should 

not be able to complain to the FOS or claim from the FSCS 

about the management of the company? 

31 The proposed approach is to apply a consistent regime to all AIFs that are bodies corporate but are not collective investment schemes. 

The most common example we are aware of in this category are closed-ended investment companies. We have referred to this 

category in this chapter as ‘investment companies’. 

32 To be eligible to complain to the FOS, a complainant must have one of a number of specified relevant relationships with the firm 

concerned. Investors in investment companies do not appear to fall under any of the specified categories. To be eligible to claim to the 

FSCS, a claimant must be owed a civil liability by the firm in default. Under the current way that the industry is generally structured, 

it is unlikely that a MiFID manager of an investment company would owe a civil liability directly to an investor in the company. 


March 2013 

Fund depositaries 



5.11 The AIFMD requires a full-scope UK AIFM that manages UCIS and investment companies 

to ensure a depository is appointed. UK implementation will require that depositary to be 

authorised by the FCA. Currently, only FSA-authorised funds must appoint an authorised 

depositary. That depositary is covered by the FOS and the FSCS and we do not intend to 

change the scope of coverage where the fund itself is FCA-authorised, as we believe that 

investors in authorised funds expect a high degree of protection. 

5.12 In view of the extension in the scope of regulation for depositaries, we have considered 

whether investors in UCIS or investment companies should be able to complain to the FOS 

or claim to the FSCS about the depositary of the fund. We do not propose to extend FOS 

or FSCS protection for these depositaries 33 because the new Directive requirement on an 

AIFM to appoint an authorised depositary already increases protection for investors in 

these funds. We do not think it is necessary in this case to increase consumer protection 

further by adding FOS or FSCS protection. 

5.13 Also, UCIS are generally only allowed to be marketed to institutional, sophisticated and 

high net worth investors, many of whom are not eligible to complain to the FOS or claim 

to the FSCS. Although retail investors may buy shares in investment companies, the 

proposal not to allow them to complain to the FOS or claim to the FSCS about the fund’s 

depositary is consistent with our proposal that they should not be able to complain or 

claim about the management of the company. 

5.14 Under the Treasury’s proposed regimes for sub-threshold AIFMs, the requirement to appoint an 

FCA-authorised depositary will not apply where a UCIS or investment company is managed by 

a sub-threshold AIFM. 34 Nevertheless, the fund may appoint a third party to carry out custody 

functions, and this third party must be authorised by the FCA if it is carrying out a regulated 

activity. 35 We propose that investors in these funds should not be able to complain to the FOS 

or claim from the FSCS about these third parties, to maintain consistency with the proposed 

approach for depositaries of AIFs managed by full-scope UK AIFMs. 

Depositaries of charity funds 

5.15 As set out in the Treasury’s second consultation document 36 , there are two types of charity 

fund that will become AIFs under UK implementation. These are common investment funds 

(CIFs) and common deposit funds (CDFs). These funds are established under current 

charities legislation and allow charities to invest in a pooled investment fund while 

benefitting from charitable tax relief and exemptions. 

5.16 We regulate the managers and depositaries of CDFs and CIFs, but the funds themselves are 

regulated by the Charity Commission. The Charity Commission imposes rules on charity 

33 Except in the circumstances set out in paragraphs 5.15 to 5.17. 

34 See Chapter 2 of the Treasury’s first consultation paper. 

35 Some such firms carry out the regulated activity of ‘safeguarding and administering investments’. 

36 This second consultation paper can be found at www.hm-treasury.gov.uk/consult_fullindex.htm. 




Annex X 

funds, which are in some cases similar to FSA rules for authorised funds. Because these 

charity funds are not FSA-authorised they fall within the category of UCIS. Nevertheless, 

there is a specific exemption from the UCIS marketing restrictions that allow CIFs to be 

marketed to retail investors that are charities, and we propose to extend this to CDFs (as 

set out in paragraph 7.19). 

5.17 As the investors eligible to hold units in CIFs and CDFs include charities that are classed as 

retail investors, and because these funds themselves are subject to regulation by the Charity 

Commission, we propose that investors in these funds should be afforded redress 

mechanisms similar to those available to investors in FCA-authorised funds. We therefore 

propose that investors in CIFs and CDFs should be permitted to complain to the FOS or 

claim to the FSCS about the fund’s depositary, subject to the usual conditions for making a 

complaint or claim. 

Q8: Do you agree that investors in UCIS (except for CIFs and 

CDFs) should not be able to complain to the FOS or claim 

from the FSCS about the depositary of the fund? 



about the depositary of the fund? 

Q10: Do you agree that investors in CIFs and CDFs should be able 

to complain to the FOS or claim from the FSCS about the 

depositary of the fund (subject to the usual criteria)? 

Consumer redress and cross-border AIFM activities 

Background 

5.18 AIFMD introduces a management passport that will permit AIFMs established in one 

Member State to manage AIFs in other Member States. This is similar to the passport for 

UCITS management companies. 

5.19 The compulsory jurisdiction of the FOS normally covers regulated activities carried on 

from an establishment in the UK, while the FSCS may pay compensation for activities 

carried on by FSA-authorised firms (with a Part IV permission) and certain passported 

activities of some incoming EEA firms. 

5.20 In the context of cross-border fund management activities, the appropriate territorial scope 

of the FSCS and the FOS may be different to that in other financial services sectors, because 


March 2013 



there are two entities in different EEA jurisdictions: the manager and the fund. For 

example, we think that investors in an FCA-authorised fund will expect protections such as 

FOS and FSCS, regardless of where and by whom the fund is managed. 

5.21 When we implemented the UCITS management company passport in 2011, we decided to 

amend the scope of the FOS and the FSCS to take account of the location of the fund. We 

propose to follow this approach for AIFMD. 

5.22 In our current proposals, we have assumed that AIFMs will be able to passport within the 

internal market any individual portfolio management activities they undertake under Article 

6(4) AIFMD. The availability of this passport to be used in this way is still under 

consideration at EU level. If it is decided that AIFMs cannot passport these activities, our 

final rules will need to reflect this. 

Proposed scope of the FOS under the AIFMD 

5.23 The FOS usually covers activities carried on from an establishment in the UK. This includes 

UK branches of EEA firms, as well as UK firms carrying out cross-border activities from 

the UK on a services passport. 

5.24 We intend to maintain this approach for most cross-border fund management activities 

under AIFMD, as we believe that a consistent approach will make it easier for the FOS to 

explain its territorial jurisdiction to consumers. But we intend to make an exception by 

extending FOS coverage to EEA AIFMs managing FCA-authorised funds from an 

establishment outside the UK. 

5.25 It is possible that an EEA AIFM, managing an FCA-authorised AIF on a cross-border 

services passport, may be subject to an independent complaints resolution scheme in its 

home Member State. In this context it is relevant that the FOS has a general right to 

dismiss a complaint without considering its merits if it has been or is being dealt with by a 

comparable independent complaints scheme or dispute resolution process. 37 With the 

consent of the complainant, the FOS can also refer complaints to another complaints 

scheme if it considers that the matter would be more suitably dealt with by that scheme. 38 

5.26 Apart from this exception, we propose that the FOS’s compulsory jurisdiction should cover 

regulated activities which the AIFM carries on from an establishment in the UK. This 

includes managing a UK-domiciled UCIS, managing a non-UK domiciled CIS and carrying 

on individual portfolio management activities. 39 

5.27 We do not propose to extend the FOS’s compulsory jurisdiction to non-EEA managers of 

AIFs marketed in the UK. The FSA generally prohibits the marketing of non-UK AIFs to 

37 DISP 3.3.4R(7) in the Handbook. 

38 DISP 3.4.1R in the Handbook. 

39 This refers to the activities under Article 6(4) AIFMD. 




Annex X 

retail investors in the UK. 40 It should not be assumed that non-EEA AIFMs marketing these 

AIFs are subject to similar levels of regulation to EEA AIFMs. 

Complaints-handling rules 

5.28 We require firms that are covered by the FOS to comply with our complaints-handling 

rules. This is because we expect firms to investigate complaints diligently and fairly to 

reduce the need for consumers to go to the FOS. We therefore propose to extend our 

complaints-handling rules to EEA AIFMs managing: 

• UK-authorised AIFs, whether via a UK branch or cross-border services; and 

• UK-domiciled UCIS from a UK branch. 

5.29 For these EEA firms, we propose to extend our complaints-handling, complaints-recording 

and complaints-reporting rules, but not our complaints data publication rules. This is 

consistent with our usual approach for incoming EEA firms. 

Q11: Do you agree that the FOS’s compulsory jurisdiction and our 

complaints handling rules should cover AIFMs managing FCAauthorised 

funds, whether from the UK or the EEA? 

Q12: Do you agree that, where an AIFM is not managing an FCAauthorised 

fund, the FOS’s compulsory jurisdiction and our 

complaints handling rules should cover its activities where 

they are carried on from an establishment in the UK? 

Proposed scope of the FSCS under the AIFMD 

5.30 We intend that the FSCS should cover only cross-border fund management activities where 

the fund is an FCA-authorised fund. This means that the FSCS will: 

• cover an EEA AIFM managing a UK-authorised fund; 

• not cover either a UK AIFM managing a non-UK fund; and 

• not cover an EEA AIFM managing a UK-domiciled UCIS. 

5.31 We believe that this provides an appropriate level of protection for investors, without 

creating an undue funding burden for UK firms. 

5.32 If an EEA AIFM managing an FCA-authorised fund were to be covered by a compensation 

scheme in its home State, the FSCS would be allowed under its operating rules to postpone 

40 There is an exception for CIS that are recognised schemes, as explained in Chapter 7 of this paper. Non-UK closed-ended investment 

companies can also be sold to retail investors in the UK. 


March 2013 



paying compensation, if it considered that the claimant should first make and pursue an 

application for compensation to that scheme (or any third party). 41 The FSCS has indicated 

that, in deciding how to proceed, it would act reasonably in the light of all the 

circumstances. 

5.33 Where an EEA AIFM manages a UK-domiciled UCIS or carries out individual portfolio 

management activities 42 from a UK branch, we intend to allow that AIFM to apply to 

obtain top-up cover for these activities (which would bring them within scope of the FSCS). 

In this case the FSCS will assess the firm’s application to determine whether it is eligible to 

top up. 

5.34 We do not propose to extend FSCS coverage to non-EEA managers of AIFs marketed in the 

UK, for the same reasons as we cited for not extending FOS coverage in paragraph 5.27. 

Q13: Do you agree that an AIFM carrying out cross-border fund 

management activities should be required to be within scope 

of the FSCS, but only for the activity of managing an FCAauthorised 

fund? 

Q14: Do you agree that an EEA AIFM operating from a UK branch 

which is not required to be within scope of the FSCS should 

be eligible to obtain top-up cover? 

FOS and FSCS levies 

5.35 Firms covered by the FOS and the FSCS must pay annual levies to contribute to the 

running costs of those organisations. Under our proposals, EEA AIFMs managing FCAauthorised 

AIFs will be subject to FOS and FSCS levies. EEA AIFMs managing 

UK-domiciled UCIS from a branch in the UK will also be required to pay FOS levies. 

Currently, the FOS levy for fund managers is £250 per year and the FSCS levy for fund 

managers is based on their annual eligible income. 

5.36 Please refer to Annex 5 for a summary of cross-border activities covered by the FOS and 

the FSCS. It does not form part of the Handbook and is included here for information only. 

41 See COMP 9.2.2R in the FSA Handbook. 

42 These are the activities set out in Article 6(4) AIFMD. 




6 

Depositaries and client 

assets requirements 

6.1 This chapter sets out our proposals to adapt the rules and guidance in the Client Assets 

sourcebook (CASS) for depositaries of AIFs, and explains our thinking on other matters 

relevant to CASS and to the duties of depositaries of AIFs. 

Proposed changes to CASS 

6.2 The rules in Chapter 6 of CASS are designed primarily to ensure that a firm must: 

Annex X 

• when holding safe custody assets belonging to clients, make adequate arrangements to 

safeguard clients’ ownership rights, especially in the event of the firm’s insolvency; and 

• introduce adequate organisational arrangements to minimise the risk of the loss or 

diminution of clients’ safe custody assets. 

6.3 CASS 6 applies a specialist regime to trustee firms and depositaries. 43 It is likely that some 

firms becoming AIF depositaries will already be subject to this specialist regime, whereas 

others will already be subject to the whole of CASS 6. We have reviewed our CASS 6 rules 

and are proposing a number of changes to them, to ensure they are consistent with the 

AIFMD and differentiate between categories of AIF depositaries in a logical way. 

6.4 We propose to maintain the existing separation of requirements for depositaries in the 

Handbook: that is, for FUND to include the transposed AIFMD Level 1 requirements and 

the signposting to the Level 2 Regulation, and for CASS 6 to include any other domestic 

43 The specialist regime is contained in CASS 6.1.16F R. It generally applies when a trustee firm or depositary acts as a custodian for a 

trust or collective investment scheme and: 

(1) the trust or scheme is established by written instrument; and 

(2) the trustee firm or depositary has taken reasonable steps to determine that the relevant law and provisions of the trust instrument 

or scheme constitution will provide protections at least equivalent to the custody rules for the trust property or scheme property. 

The specialist regime applies a limited number of CASS 6 provisions to trustee firms or depositaries that satisfy the conditions under 

CASS 6.1.16F R. 


March 2013 



requirements for safe-keeping and its delegation. We have considered other options, but we 

believe this offers the greatest clarity and convenience for the majority of Handbook users. 

6.5 In the draft instrument, we have proposed amendments to some of the CASS 6 provisions 

and relevant Glossary definitions to make them consistent with AIFMD. 

6.6 Each of the following types of depositaries will have a new, separate specialist regime that 

sets out which CASS 6 rules would apply to them: 

• depositaries of unauthorised AIFs – that is, for those funds intended for professional 

investors; and 

• depositaries of authorised AIFs – that is, for those funds where we can apply additional 

rules and guidance to protect retail investors. 

6.7 Where the AIFM is a sub-threshold manager, or is above threshold but is managing a non- 

EEA AIF not marketed in the EEA, the AIFMD does not apply responsibilities to depositaries. 

We propose no changes to how CASS 6 applies either to firms acting as depositaries or 

custodians for such AIFs, or to firms that act as delegates of AIFMD depositaries except in 

one case: where a sub-threshold manager manages a UK-authorised AIF, the same provisions 

will apply as for a full-scope UK AIFM managing a UK-authorised AIF. 

6.8 For depositaries of unauthorised AIFs, we propose to retain only the CASS 6 provisions that 

are either outside the scope of, or are consistent with, the AIFMD (for example, because they 

transpose the principles of Article 16(2) of the MiFID Implementing Directive, 44 as referred to 

in AIFMD, or are otherwise envisaged by AIFMD under Chapter IX (competent authorities)). 

The key CASS 6 provisions in this regard include provisions relating to: 

• the general purposes of the CASS 6 custody rules; 

• registration of legal title; 

• a depositary accepting responsibility for its nominee company over custody rules; 

• restrictions on a depositary recording legal title to its own applicable assets in the same 

name as that for safe custody assets; 

• arranging registration of a safe custody investment; 

• keeping records of segregation; 

• record-keeping for client agreements; and 

• notification requirements. 

6.9 The requirements in CASS 6.2.4R (relating to a depositary’s nominee company) and 6.2.5R 

(recording of legal title to the depositary’s own assets) are in addition to the requirements 

44 Commission Directive 2006/73/EC of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of the 

Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of 

that Directive. 




Annex X 

to which a depositary may currently be subject. We also propose to amend the definition of 

safe custody asset and the general scope of CASS 6 to cater for the regulated activity of 

acting as the depositary of an AIF. 45 

6.10 For depositaries of authorised AIFs, the AIFMD is minimum harmonising. So where a firm 

acts as a depositary of an authorised AIF, as well as those CASS 6 provisions which we 

propose to apply to depositaries of unauthorised AIFs, we also propose to apply other 

existing CASS 6 provisions that are consistent with the AIFMD, and could provide 

appropriate client protection. The additional provisions of CASS 6 that we intend to apply 

to depositaries of authorised AIFs include those relating to: 

• internal reconciliations and auditor opinions of alternative reconciliation methods; 

• statements from delegated third parties; 

• the frequency of external reconciliations; and 

• the independence of persons conducting reconciliations. 

Other CASS and CASS-related provisions 

6.11 We are proposing that, apart from CASS 6, provisions in the remainder of CASS (and 

provisions elsewhere that relate to CASS) continue to apply as they currently do to 

depositaries, to the extent that they are outside the scope of or consistent with AIFMD. 

This means that the provisions in the following Handbook chapters will broadly continue 

to apply: 

• CASS 1A and SUP 10.7 (CASS firm classification and operational oversight); 

• CASS 3 (collateral); 

• CASS 8 (mandates); 

• CASS 9 (prime brokerage); 

• CASS 10 (CASS resolution pack); 

• SUP 16.14 (client money and asset return (CMAR)); and 

• SUP 3.10 and SUP 3.11 (annual CASS audit). 

Changes to the Regulated Activities Order 

6.12 We are also proposing a number of consequential changes within CASS to reflect the proposed 

changes to the Regulated Activities Order (taking account of transitional provisions), including 

the new proposed regulated activity of acting as a depositary of a UCITS. 

45 This is also to cater for the depositary of a UCITS. 


March 2013 



Q15: Q15: Do you agree with the proposed application of CASS and 

CASS-related Handbook provisions in relation to each type of 

depositary as noted above? If not, please provide reasons. 

Wider CASS policy review 

6.13 Apart from the proposed changes to CASS set out in this paper, which stem from AIFMD 

depositary requirements, we are also carrying out a wider policy review of certain chapters 

of CASS, including CASS 6. We expect to publish the results of this review in a 

Consultation Paper later this year. 

Depositary responsibilities for cash monitoring 

6.14 We proposed in CP1 to transpose the cash monitoring responsibilities of depositaries under 

AIFMD Article 21(7) in the way drafted in FUND 3.11.17R. We have given further 

consideration to the drafting of Article 21(7), in the light of the Level 2 Regulation 

requirements in Articles 85 to 87, and we believe that there is potentially more than one way 

to interpret and transpose Article 21(7), particularly in relation to the principles in Article 16 

of the MiFID Implementing Directive. For example, we think there is a possibility that, under 

a wide interpretation of Article 21(7), all or some depositaries of AIFs may be subject to 

requirements for safeguarding cash in accordance with these principles. 

6.15 We are therefore intending to discuss Article 21(7) with relevant stakeholders to try to 

clarify its interpretation. If those discussions lead us to conclude that Article 21(7) should 

be transposed in a different way, we will make the necessary Handbook amendments. If 

any amendments would change the costs and benefits for stakeholders significantly, 

compared to what we have proposed in the current draft FUND 3.11.17R, we will 

re-consult on this matter. 




7 

Marketing 

7.1 Chapter 7 explains our approach to marketing for the purposes of AIFMD, and how 

AIFMs may exercise single market passporting rights. 

7.2 We also describe our approach to registering funds being marketed through private 

placement in the UK, to approving non-UK funds as recognised schemes that can be 

marketed to the general public, and to revising the UCIS marketing rules for common 

deposit funds. 

New section of PERG 

Annex X 

7.3 AIFMD does not specifically cover what is meant by ‘marketing’ other than the marketing 

definition in article 4(1)(x): the ‘direct or indirect offering or placement at the initiative of 

the AIFM, or on behalf of the AIFM, of units or shares of an AIF it manages to or with 

investors domiciled or with a registered office in the Union’. The Directive also stipulates 

new notifications to competent authorities enabling marketing of AIFs to professional 

investors in the EEA. In this paper, we provide additional information about how 

marketing of EEA and non-EEA AIFMs will be regulated in the UK. 

7.4 The Treasury has recently consulted on its proposed regulations transposing these AIFMD 

marketing requirements (‘the Treasury AIFMD Regulations’). 

7.5 We propose adding a new section to Chapter 8 ‘Financial promotion and related activities’ 

of PERG in Annex N of Draft Handbook Text (Appendix 1). This includes guidance on: 

46 PERG 8.37.4G. 

47 PERG 8.37.5G. 

• the meaning of offering and placement: we describe situations in which each activity 

takes place 46 ; 

• the use of draft documentation in relation to communications: we describe how such 

communications fit within the meaning of marketing for the purposes of AIFMD 

implementation; 47 


March 2013 



• the meaning of an indirect offering or placement: we provide an example 48 ; 

• the meaning of a unit or share of an AIF: we explain their meaning for funds not 

structured as corporate or unitised funds 49 ; 

• territorial scope of marketing: we explain the scope of the marketing rules may extend 

outside the UK 50 ; 

• passive marketing: we give our approach to a course of conduct which might constitute 

passive marketing 51 ; 

• the interaction between marketing under AIFMD and the requirements of the 

Prospectus Directive 52 ; and 

• the interaction between marketing under AIFMD and financial promotions: we explain 

how the Directive and our current financial promotion rules overlap. 53 

7.6 We believe this guidance on AIFMD marketing is consistent with our existing approach on 

financial promotions, to the extent it is comparable. We note that certain aspects of AIFMD 

marketing, such as the required marketing notifications to the FCA and classifications by 

firm size and domicile, will be new for firms. The final versions of our guidance will take 

account of any changes to the Treasury’s regulations following their consultation. 

Q16: Do you have any comments on our proposed marketing 

guidance in PERG? Are there any other issues related to 

AIFMD marketing that should be included in the guidance? 

Marketing requirements for retail AIFs 

7.7 In CP1 we said we might consult at a later stage on any proposed revision of retail 

marketing requirements. Because the Treasury has now indicated in its consultations that it 

does not intend to make any changes to retail marketing requirements in the UK, no further 

consultation on revised retail marketing requirements is necessary. 

48 PERG 8.37.6G. 

49 PERG 8.37.7G. 

50 PERG 8.37.8G. 

51 PERG 8.37.10G. 

52 PERG 8.37.14G. 

53 PERG 8.37.15G. 




Domestic marketing of a UK or EEA AIF managed by a full-scope UK AIFM 

Annex X 

7.8 Article 31 of the Directive governs the notification of domestic marketing of UK and EEA 

AIFs managed by full-scope UK AIFMs. We have added a new section 3.12 to FUND to 

include the required form for marketing of such AIFs in the UK. We will provide further 

details on this form and instructions on how to submit it before 22 July 2013. 

Operating on a cross-border basis 

7.9 We have added a new chapter 10 to FUND, containing guidance for AIFMs who operate 

on a cross-border basis into or from the UK. This new chapter contains guidance on the 

marketing and management passports, AIFM third-country management and national 

private placement, which is based on the Directive and the Treasury AIFMD Regulations. 

AIFM marketing passport 

7.10 Article 32 of the Directive governs the notification of cross-border marketing of UK and 

EEA AIFs managed by full-scope UK AIFMs. FUND 10.3 provides guidance on the AIFM 

marketing passport. We have drafted the notification forms 54 which provide the required 

details. They incorporate the information requirements needed to notify the relevant 

competent authority where the AIFM intends to use the cross-border marketing passport. 

7.11 With respect to the cross-border marketing form, the Treasury AIFMD Regulations take the 

view that marketing is a ‘service’ and include it in Schedule 3 of FSMA and in the 

passporting regulations. So the relevant guidance will sit in SUP 13 and the form, SUP 13 

Annex 8BR, will be included as an annex to SUP alongside other passporting forms. 

AIFM management passport 

7.12 Article 33 of the Directive allows an AIFM to passport, on a branch or services basis, to 

manage an AIF established in another Member State, subject to certain requirements such 

as notification to its competent authority. We have provided more information in FUND 

10.2, SUP 13, 13A and 14 on the AIFM management passport. SUP 13.3 provides guidance 

for establishing a branch in another EEA State. Similarly, SUP 13.4 provides guidance for 

providing cross-border services into another EEA State. Firms will be required by SUP 

13.5.2R to notify the FCA of their intentions on the form. 55 

54 SUP 13 Annex 1 R and 13 Annex 8B R. 

55 SUP 13 Annex 8A R. 


March 2013 

UK private placement registers 



7.13 The Directive permits Member States to retain or put in place national marketing regimes 

for offerings to professional investors, subject to certain conditions. 56 The Treasury has 

affirmed that these private placement regimes will be maintained in the UK, provided that 

the Directive requirements, for example on transparency, are complied with. 57 One of the 

significant changes to the existing regime will be a notification to the FCA which will also 

be required for retail offerings of AIFs within the categories listed below. We have added 

FUND 10.5, which describes such notifications and other conditions of the UK’s private 

placement regime under AIFMD. The FCA will maintain and make public the following 

three private placement registers: 

1) Article 36 Register 58 – for full-scope UK or EEA AIFMs managing non-EEA AIFs. 

2) Article 42 Register 59 – for non-EEA AIFMs that are not small AIFMs managing AIFs. 

3) Small third country AIFM Register 60 – for non-EEA AIFMs that are small AIFMs 

managing AIFs. 

7.14 We will provide further details on the forms and instructions on how to submit them before 

22 July 2013. We are also consulting on the proposed fees for recording and maintaining 

AIFs on the private placement registers. Please refer to paragraphs 8.23 to 8.28 of this 

paper for more on our fee proposals. 

Q17: Do you have any comments on the information required 

on the forms for passporting? Are there any other matters 

relating to marketing under AIFMD that should be addressed 

in rules or guidance? 

Recognised schemes under sections 270 and 272 FSMA 

7.15 The Treasury is consulting on modifications to the recognised scheme regimes contained in 

s.270 and s.272 (and related sections) of FSMA. Once the Treasury has finalised its 

position, we will make any further consequential changes to our rules. 

7.16 The s.272 regime currently allows a non-UK fund to become a recognised scheme that can 

be marketed to the general public, if it can demonstrate that it affords adequate protection 

to UK investors. Currently we request an individual fund application, along with a gap 

56 See Article 36 and 42 AIFMD. 

57 See the Treasury’s first consultation paper CP1, Chapter 3 Marketing. 

58 FUND 10.5.3G – 10.5.5G. 

59 FUND 10.5.6G – 10.5.8G. 

60 FUND 10.5.9G – 10.5.11G. 




analysis 61 , in order to determine whether the scheme is equivalent to a UK-authorised 

fund 62 or provides adequate protection to UK retail investors. The s.272 regime enables 

both EEA and non-EEA funds to apply to become a recognised scheme. 

Annex X 

7.17 We must also take into account Article 43 of the Directive concerning the marketing of 

AIFs by AIFMs to retail investors. The UK must not impose stricter or additional 

requirements on EEA AIFs established in another Member State and marketed on a crossborder 

basis than on UK AIFs marketed domestically. Because the UK will continue to 

allow AIFMs to market UK AIFs (eg. NURS) to retail investors, we may not impose stricter 

or additional requirements on such EEA AIFs. So at this stage we are consulting on changes 

to the fees for EEA Recognised Overseas Schemes. Please refer to paragraphs 8.29 to 8.33 

of this paper for more on our fee changes. 

Revising UCIS marketing rules for CDFs 

7.18 As part of our implementation of AIFMD, we have reviewed the position of charity funds. We 

intend to extend certain protections to investors in charity funds, as mentioned in Chapter 5 

concerning the depositaries of charity funds. Additionally, with respect to marketing, we 

intend to make a revision to our UCIS framework pertaining to charity funds. 

7.19 Currently, there are exemptions from the UCIS marketing restrictions, which allow CIFs 

and other charity funds to be marketed to charities (including those that are retail 

investors). 63 However, this exemption does not extend to common deposit funds established 

under the Charities Act 2011 (CDFs). To align our rules with the statement in the second 

Treasury consultation that CDFs should be considered as a type of UCIS, we propose to 

extend the marketing exemption to them. So we have included reference to CDFs in COBS 

4.12.1R(4) permitting the marketing of CDFs to eligible charities. 

Q18: Do you agree with the proposal to permit CDFs to be 

marketed to eligible charities? 

61 A regulatory analysis is required under s.272(5)(a), and the FSA has interpreted it to require the applicant to carry out a gap analysis of 

(a) the home state primary legislation against UK primary legislation and (b) the rules applicable to the fund against the COLL rules. 

62 Current recognised schemes are equivalent to a UK NURS or UCITS fund, but it would also be possible for a QIS-equivalent fund to 

be recognised allowing such fund to market to those retail investor categories eligible to purchase QIS funds (COLL 8 Annex 1). 

63 COBS 4.12.1R(4). See Category 3 Person. 


8 

Fees 

March 2013 



8.1 This chapter sets out our proposal for charging fees to entities that will be regulated under 

the AIFMD to cover FCA costs in regulating them. Our proposals affect the following 

sections of the Handbook: FEES 3, 4, 5 and 6. 

How the FCA will be funded 

8.2 Like the FSA, the FCA will be funded by the firms that it regulates. We recover the money 

we need to operate through: 

• fees we charge firms that apply to be authorised or registered to carry on regulated 

activities; and 

• annual (periodic) fees that we charge firms to cover the costs of supervising them. 

8.3 The application fee depends on the complexity of the relevant application, whether the 

application is for authorisation, registration or a VoP. Our fees are designed to reflect our 

work in processing the application, but also take into account the fact that we do not want 

to introduce a barrier to entry into the market. We aim to cover our costs in a way that is 

as fair and efficient as possible. 

8.4 The annual fee charged for a particular firm does not precisely reflect the amount of work 

we put into supervising it, because tailoring fees across all regulated firms would not be 

practicable. Instead, we allocate firms to ‘fee-blocks’, which we define on the basis of the 

regulated activities they carry on. We then estimate the supervisory resource we will require 

to supervise the firms in each fee-block and charge the firms in each block a rate designed 

to recover our costs. This means that firms carrying on similar activities are charged in the 

same way. It also means that they do not have to cover the costs for firms carrying on 

activities that are not related to them. 

8.5 In this chapter we are consulting on how we will charge fees to AIFMs and AIF depositaries. 

Since at this stage we do not know precisely how many firms or AIFs will fall within our 

regulatory remit for the first time under the AIFMD, or exactly how much supervisory 




Annex X 

resource will be required, where we have proposed specific fee rates these represent our best 

estimates of the costs we will need to recover. We will keep them under review and, if 

circumstances change, consult in future on any changes that may become necessary. 

8.6 We will feed back on the proposals in this Chapter in our Fees Policy Statement in June 

2013. The final rules will take account of the fact that the new regulatory structure 

resulting from the Financial Services Act 2012 will be created on 1 April 2013. In October 

2012 we consulted on some changes to the fees rules to support the new regulatory 

structure. 64 We intend to publish the final version of these rules at the end of March 2013. 

It is the final version of these rules, rather than the current rules, which will apply to the 

FCA’s AIFMD regime. 

8.7 The rules to be published in the June Fees Policy Statement will come into effect in July 

2013. Each year, firms are charged based on the fee-blocks into which they fall on 1 April 

that year. Existing firms will therefore not be affected by these proposals until 2014/15. 

However, any firms applying for authorisation or registration during 2013/14 will be 

charged fees pro rata based on the new fee-block structure. 

8.8 At the end of March 2013 we will publish our annual fee rates consultation, which will set 

out the proposed fee rates for all firms, including AIFMs and depositaries, for 2013/14. We 

will feed back on these proposals in the June Fees Policy Statement. 

8.9 Our proposals are set out below under the following headings: 

• authorised AIFMs and AIF depositaries; 

• registered AIFMs; 

• discounts for UK branches of EEA AIFMs; 

• AIFMs managing AIFs marketed in the UK under national private placement; 

• recognised schemes under sections 270 and 272 FSMA; 

• FSCS levies; 

• FOS levies; and 

• Money Advice Service levies. 

Authorised AIFMs and AIF depositaries 

8.10 Some firms that will need to become authorised as AIFMs or AIF depositaries are already 

authorised by us with a Part IV permission, while others will need to apply to be authorised 

or registered for the first time. 65 We intend to accommodate authorised AIFMs and 

64 CP12/28, Regulatory fees and levies: policy proposals for 2013/2014, October 2012 www.fsa.gov.uk/static/pubs/cp/cp12-28.pdf 

65 More detail on the scope of AIFMD is set out in Chapter 3 of CP1. 


March 2013 



depositaries within the existing fee-blocks A.7 and A.9, with minor changes to reflect the 

Treasury’s proposed changes to regulated activities, set out in its first AIFMD consultation, 

and to accommodate newly-authorised internally managed AIFs. 

Application fees (FEES 3.2.7R(a); FEES 3, Annex 1R) 

8.11 Our standard authorisation fees are divided into three tiers, depending on whether the 

application is classed as ‘straightforward’, ‘moderately complex’ or ‘complex’. The activities 

in fee-blocks A.7 and A.9 are currently classed as ‘moderately complex’, and we do not 

believe any change is needed to accommodate AIFMD requirements. This will result in an 

authorisation fee of £5,000 and a VoP fee of £2,500 if the firm needs to change fee-blocks, 

or £250 if it does not. 

8.12 Firms seeking authorisation for the first time should note that our fees are payable on 

application and are generally not refundable, irrespective of whether authorisation is 

granted or not. This is because we have to carry out a full assessment of the firm, whatever 

the eventual FCA decision. 

Periodic (annual) fees (FEES 4.2.11R; FEES 4, Annex 1R, Annex 2R) 

8.13 We need to change the way that fee-blocks A.7 and A.9 are defined in light of the 

Treasury’s proposed changes to regulated activities. These are summarised in Table 8.1. 

8.14 Since firms holding the new permissions of ‘managing an AIF’ or ‘managing a UCITS’ will 

not need to hold either of the existing permissions ‘establishing, operating or winding up a 

CIS’ (currently in fee-block A.9) or ‘managing investments’ (currently in fee-block A.7), we 

have put these new permissions into both fee-blocks A.7 and A.9. AIFMs and UCITS 

management companies will pay fees in A.7 for their portfolio management activities and 

fees in A.9 for their risk management and administrative activities. We anticipate that under 

our proposals most currently-authorised firms will remain in their existing fee-block(s) 

unless they are changing the scope of their activities. 

Table 8.1: Summary of proposal for restructuring A.7 and A.9 fee-blocks 

Current coverage Coverage after AIFMD implementation 

A.7 – Fund managers 

(tariff measure = funds under management) 

+ Class 1 – Managing investments 

+ Class 2 – Safeguarding and administering assets 

+ Class 3 – Managing investments, advising 

and arranging in relation to venture capital 

investments 

A.7 – Portfolio managers 

(tariff measure = funds under management) 

+ Class 1 – Managing investments 

+ Class 2 – Safeguarding and administering assets 

+ Class 3 – Managing investments, advising and 

arranging in relation to venture capital firms 

+ Class 4 – Managing an AIF 

+ Class 5 – Managing a UCITS 




Current coverage Coverage after AIFMD implementation 

A.9 – Operators, trustees and depositaries 

of CIS, and operators of personal pensions 

schemes and stakeholder pension schemes 

(tariff measure = gross income) 

+ Establishing, operating or winding up a CIS 

+ Acting as a sole director or depositary of 

an OEIC 

+ Acting as a trustee of an AUT 

+ Establishing, operating or winding up a personal 

pension scheme or a stakeholder pension scheme 

Provided the firm is not a corporate advisory firm, 

carrying out corporate finance business only or a 

venture capital firm. 

+ Trustee only 

Annex X 

A.9 – Managers and depositaries of investment 

funds and operators of CIS or pension schemes 

(tariff measure = gross income) 

+ Managing an AIF 

+ Managing a UCITS 

+ Acting as a trustee or depositary of an AIF 

+ Acting as a trustee or depositary of a UCITS 

+ Establishing, operating or winding up a CIS 

which is not an AIF or UCITS 

+ Establishing, operating or winding up a personal 

pension scheme or a stakeholder pension scheme 

Provided the firm is not a corporate advisory firm, 

carrying out corporate finance business only or a 

venture capital firm 

+ Trustee only 

8.15 Two permissions in fee-block A.9 will eventually be removed as they will become obsolete, 

but will remain in place during the transitional period, so that firms that currently hold those 

permissions can remain in the fee-block until they have updated their permissions. These are: 

• acting as a trustee of an authorised unit trust scheme; and 

• acting as the depositary or sole director of an open-ended investment company. 

8.16 Currently, firms in fee-block A.7 (for example, CIS operators with the ‘managing 

investments’ permission), which formally delegate portfolio management to MiFID firms, 

do not need to report the assets of the relevant funds in A.7, since these assets would be 

reported separately by the MiFID manager. We intend to maintain this rule for firms in feeblock 

A.7, which will now include AIFMs and UCITS management companies. Regardless 

of any such delegation arrangements, these firms would still need to report income in A.9 

to cover their risk management and administrative activities. 

Authorised internally-managed investment companies 

8.17 Firms authorised as internally-managed AIFs will have AUM to report in fee-block A.7, but 

no income in fee-block A.9 because the investors are shareholders and do not pay the fund 

manager an annual management charge or any front-end or exit charges. In our view it 

would be unfair if these firms paid no fees in this fee-block because they will be subject to 

supervision of their risk management and administrative activities. Were we not to levy a 

fee, this would mean that the costs of their supervision would be cross-subsidised by other 

firms in fee-block A.9, including external managers of AIFs. 

8.18 We need to establish a proxy figure for the income they would have received if they were 

an external manager of the fund. Fees vary but our review of the sector suggests that 1% of 


March 2013 



AUM would be a reasonable average figure. We accordingly propose that internally 

managed investment companies should multiply the AUM they declared in A.7 by 0.01 to 

derive the income figure that they report for A.9. 66 

Depositaries of UCIS and depositaries of investment companies 

8.19 Newly authorised depositaries of UCIS or investment companies will fall into block A.9, 

along with existing depositaries. Firms in block A.9 are charged on the basis of their gross 

income. Where a depositary has a narrower role than a depositary of an authorised fund 

(e.g. depositaries of private equity funds) we expect this to be reflected in their fees since 

the fees are based on gross income. 

Q19: Do you agree with our proposed structure of application and 

periodic fees for authorised AIFMs and depositaries? 

Registered AIFMs (FEES 4.2.11R; FEES 4 Annex 4R) 

8.20 Sub-threshold registered AIFMs 67 will require significantly less supervision than authorised 

AIFMs, and their applications will be simpler to process, so they should pay lower fees. We 

are proposing an application fee of £1,000 and a flat annual (periodic) fee of £1,000. 

8.21 Assessing an application for full authorisation will be significantly more complex than 

assessing an application for registration. If a registered AIFM wishes to seek authorisation 

as a full-scope AIFM, it will therefore be treated as a new application, incurring the full 

£5,000 application fee as set out in paragraph 8.11. Once approved, it would fall into feeblocks 

A.7 and A.9 like other authorised AIFMs. 


periodic fees for registered AIFMs? 

Discounts for UK branches of EEA firms (FEES 4, Annex 2R, Part 3) 

8.22 Because we are accommodating AIFMs within the existing fee-block structure, the 

passported UK branches of EEA firms will be given the discounts applicable to branches of 

EEA firms in the appropriate fee-blocks. In our October 2012 fees consultation, we 

consulted on removing the discounts for branches of EEA firms in several fee-blocks, 

including fee-blocks A.7 and A.9. 68 In light of the responses received, we will set out our 

proposals for discounts for these fee-blocks in the consultation on fee-rates that we are 

publishing at the end of March 2013. 

66 This would mean, for example, that an authorised internally managed investment company with £1bn AUM would pay a total fee of 

£22,163 based on the fee rates for 2012/13. 

67 See Chapter 3 in this paper for more detail on the UK’s sub-threshold regimes under AIFMD. 

68 CP12/28: Regulatory Fees and Levies: policy proposals for 2012/2013, October 2012, Paragraphs 2.24-2.27. 




AIFMs managing AIFs marketed in the UK under national private placement 

(FEES 3, Annex 2) 

Annex X 

8.23 Under AIFMD, we will be required to maintain three registers of AIFs, which can be 

marketed in the UK under national private placement. The details of these registers are set 

out in Chapter 7. These registers are: 

• the Article 36 register of non-EEA AIFs managed by EEA AIFMs (including UK AIFMs) 

and marketed in the UK; 

• the Article 42 register of AIFs managed by full-scope non-EEA AIFMs and marketed in 

the UK; and 

• the small third-country AIFM register of AIFs managed by sub-threshold non-EEA 

AIFMs and marketed in the UK. 

8.24 We will be required to carry out a basic approval process to ensure that these AIFs are 

eligible for inclusion on the relevant private placement register. Once an AIF is on the 

relevant private placement register, its AIFM will need to report data to us in line with 

AIFMD requirements and we will monitor this data for systemic risk purposes. 

8.25 In the case of the Article 36 register, we will already regulate the AIFM and charge it 

regulatory fees, if it is a UK AIFM or an AIFM operating from a UK branch. In this 

instance, we do not intend to charge the AIFM fees for putting an AIF on the private 

placement register, because the regulatory fees we charge the AIFM are intended to cover 

the costs associated with the relevant funds. 69 In the case of a non-EEA AIFM with an AIF 

on the Article 42 register, or an EEA AIFM that is not operating from a UK branch with an 

AIF on the Article 36 register, we do not already charge the AIFM regulatory fees, so we 

intend to charge fees to recover our costs in assessing the application to put an AIF on the 

relevant private placement register. 

8.26 We intend to charge AIFs on the private placement registers the application fees set out in 

Table 8.2. The application fees will form a new Part 4 in FEES 3 Annex 2. 

Table 8.2 

Funds on the private placement registers: application fees 

Type of fund Fee per fund 

Article 36 register, where the AIFM is not otherwise paying FCA fees as an AIFM £300 

Article 42 register £300 

Small third-country AIFM register £150 

8.27 The periodic fee rates will be set out in FEES 4 Annex 4. Our proposed rates are set out in 

Table 8.3. 

69 Currently, we only charge separate fees for funds if those funds are authorised or recognised by the FSA under sections 242, 262, 264, 

270 or 272 FSMA. 


March 2013 

Table 8.3 

Funds on the private placement registers: periodic fees 



Type of fund Fee per fund 

Article 36 register, where the AIFM is not otherwise paying FCA fees as an AIFM £500 

Article 42 register £500 

Small third-country AIFM register £350 

8.28 These fees represent our best estimate of the supervisory resource required to fulfil our 

obligations for AIFs for the private placement registers. We intend to review these fees once 

we have more supervisory experience for the funds. 

Q21: Do you agree with the proposed fees structure for recording 

and maintaining AIFs on the national private placement 

registers? 

Recognised schemes under sections 270 and 272 FSMA 

8.29 As explained in paragraphs 7.15 to 7.17 of Chapter 7, the Treasury is currently consulting 

on changes to the recognised schemes regime. The proposed new regime for individually 

recognised schemes will remove the current s.270 regime and modify s.272 FSMA. Our fee 

proposals in this paper therefore assume that the new regime will be implemented as set 

out in the Treasury’s consultation. We will need to adjust these if the Treasury subsequently 

modifies its proposals. 

Application fees 

8.30 At present, all applicants under s.272 are charged an application fee of £14,000 (FEES 3 

Annex 2 Part 2). This no longer reflects our costs. Our proposals for replacing them are: 

• EEA schemes: will be charged the same fees as the equivalent UK schemes. Applying 

the rates in force in 2012/13, these are £1,500 for the equivalent of a NURS and 

£2,400 for the equivalent of a QIS. 

• Non-EEA schemes: will be charged £8,000. 

8.31 The current regime for schemes recognised under s.270 will be removed and these funds 

will transition to the modified s.272 regime. We do not propose to charge these funds an 

application fee as they will be automatically transferred to the new regime without 

reassessing their eligibility. Any scheme currently capable of being recognised under s.270 

that applies to be recognised for the first time after 22 July 2013 will be charged the same 

application fees as other non-EEA schemes. 




Periodic fees (FEES 3, Annex 2R; FEES 4, Annex 4R) 

Annex X 

8.32 We propose that recognised schemes established in another EEA jurisdiction should be 

charged the same periodic fee as UK authorised funds, as they will need to be charged the 

same fees. We propose to charge non-EEA recognised schemes a different periodic fee. The 

former s.270 schemes will be charged the same periodic fees as other non-EEA schemes. 

8.33 Since we charge fees based on the fee-blocks into which entities fall on 1 April of each year, 

the fees paid by existing recognised schemes will not be affected by these changes until 

2014/15. We will consult on the fee rates in these schemes for 2014/15 in our fees 

consultation in March 2014. 

Q22: Do you agree with the proposed new fee structure for 

recognised schemes? 

FSCS levies (FEES 6, Annex 3) 

8.34 In January 2013, we published CP13/1: FSCS Funding Model Review – feedback on 

CP12/16 and further consultation 70 , which confirmed some changes to the current funding 

arrangements for the FSCS which will take effect from 1 April 2013. It is these rules, rather 

than the current rules, which will apply to the FCA’s AIFMD regime. 

8.35 Firms whose activities are within the scope of the FSCS are subject to FSCS levies. 71 For the 

purposes of compensation and specific cost levies, we allocate firms to funding ‘classes’, on 

the basis of the regulated activities for which they have permission that are within the 

scope of FSCS protection. 72 

8.36 AIFMs and AIF depositaries will be allocated to class D1 (Investment Provision 73 ). The 

tariff base for this class is annual eligible income. 74 For most AIFMs and depositaries, there 

will be no change to the current arrangements. 

8.37 As set out in Chapter 5, we propose to extend the scope of FSCS protection to eligible 

customers of EEA AIFMs managing FSA-authorised AIFs, whether via a UK branch or 

using a cross-border services passport. These firms will be allocated to class D1 and will 

therefore be required to pay levies in the same way as UK AIFMs subject to the FSCS levies. 

70 www.fsa.gov.uk/static/pubs/cp/cp13-01.pdf. 

71 The FSCS is funded by two types of industry levy: a compensation costs levy and a management expenses levy. The compensation 

costs levy raises money to pay consumer claims. The management expenses levy is made up of a base costs element (which relates to 

the general costs of the FSCS) and a specific costs element (which, from 1 April 2013, will comprise costs attributable to a class). 

72 These classes and the grouping of activities within them are distinct from regulatory ‘fee-blocks’. 

73 This class is currently known as the Investment Fund Management class. 

74 This means income attributable to business with or for the benefit of eligible claimants, but firms also have the option to report their 

total net income. 




8.38 We intend to restrict the scope of FSCS to exclude the activities of a UK AIFM managing a 

non-UK AIF. FSCS levies for these firms will be determined by reference to income only 

from the parts of their business that could give rise to a valid FSCS claim. 75 

March 2013 

FOS levies (FEES 5, Annex 1) 

8.39 Firms covered by the FOS are subject to the annual FOS levy and FOS case fees. 

8.40 For the purposes of the annual levy, firms are allocated to industry blocks based on the 

activities they carry out. AIFMs and AIF depositaries will be in industry blocks 5 and 6, 

which mirror FSA fee-blocks A.7 and A.9. Firms in these blocks pay a flat fee. Under the 

fee rates for 2012/2013, an AIFM would pay £250 and a depositary would pay £50. For 

most AIFMs and depositaries, there will be no change to these arrangements. 

8.41 We intend to extend the scope of the FOS levy to include EEA AIFMs managing FSAauthorised 

AIFs, whether via a UK branch or cross-border services. We intend to charge 

these firms the same flat fees as we charge UK AIFMs subject to the FOS. It may be that, 

on average, incoming EEA AIFMs conduct less business with eligible FOS complainants 

than UK AIFMs. However, the nature of a flat fee is that it does not take into account the 

size of a firm’s business. We do not think this is disproportionate, because the fee is 

relatively small. 

8.42 In addition to the annual levy, firms subject to the FOS must pay a case fee for each 

complaint referred to the FOS. However, they benefit from a certain number of free cases 

per year. The FOS has proposed that in 2013/14 the case fee will be £550 and the number 

of free cases will be 25. Our proposed rules do not affect this. 

Q23: Do you agree with our proposed changes to the regimes for 

funding the FOS and the FSCS? 

Money Advice Service levies (FEES 7, Annex 1R) 

8.43 Most authorised firms pay an additional levy to support the work of the Money Advice 

Service, the body to enhance the understanding and knowledge of members of the public in 

financial matters, their ability to manage their own financial affairs, and to coordinate the 

debt advice service. The costs of the Money Advice Service are recovered through the same 

system of fee-blocks used by the FSA. In January 2013, we consulted on a new method of 

allocating the costs of the Money Advice Service to fee-blocks 76 , and we will be providing 

feedback in our March 2013 fees consultation. This consultation will propose the 

75 Unless these firms choose to report total net income as annual tariff data. 

76 CP13/02, Regulatory Fees and Levies The Money Advice Service cost allocation method for 2013/2014, January 2013. 




distribution of the Money Advice Service levy between the various fee-blocks, including 

those involving AIFMs and AIF depositaries. 

Annex X 


Annex 1 

March 2013 



Cost benefit analysis 

1. This is a cost benefit analysis (CBA) of the Handbook changes outlined in this Consultation 

Paper (CP). We expect the changes proposed in this paper will be made by the board of the 

FCA, rather than by the FSA. As a result, the relevant CBA requirements are those set out 

in section 138I of the Financial Services Act 2012 rather than those in section 155 of the 

original version of FSMA. 1 

2. The CBA includes only the impacts of those proposals for which we have a CBA obligation 

(i.e. where the proposed changes require changes to the Handbook). Where the changes fall 

outside our CBA obligations (because they do not require Handbook rule changes, they 

relate to fees, 2 or to the publication of ESMA guidelines), we do not consider in this Annex 

the costs and benefits to which they give rise, but have included a discussion of the minor 

issues to which they give rise in the relevant chapters of the CP. We do not consider that 

they have any material effect on our baseline. 

3. We summarise below the policy issues considered in this CBA. 

Issue CP chapter 

1. Regime for sub-threshold AIFMs 3 

2. Prudential rules 4 

3. Consumer redress: FSCS and the FOS 5 

4. Depositaries 6 

5. Marketing 7 

1 The FCA will be required to carry out and publish a CBA when proposing draft rules and when making rules which are significantly 

different from the draft consulted on. In particular, they will be required to publish ‘an analysis of the costs together with an analysis 

of the benefits…and an estimate of those costs and of those benefits ’. However, if, in a regulator’s opinion, the costs or benefits 

cannot reasonably be estimated or it is not reasonably practicable to produce an estimate, an estimate need not be provided; but in 

this case, the regulator must explain why it is of that opinion. Finally, no CBA is required if a regulator considers that there will be no 

increase in costs or there will be a cost increase of minimal significance. 

2 Section 138I of the Financial Services Act 2012 states that the FCA is not required to carry out and publish a CBA when proposing 

draft rules in relation to fees. 

Financial Services Authority A1:1



The relevant baseline 

Annex 1X 

4. This CBA compares the overall position if the proposed regulatory changes are applied and 

the overall position if they are not (i.e. the baseline). In CP1 we considered that the 

appropriate baseline was the status quo, defined as the current regulations to which the 

different firms are subject and current business practice. 

5. For the proposals in this CP, we are considering a different baseline. In addition to the rules 

that are currently in existence and the business practices currently followed by firms, we 

need to include the changes proposed by the Treasury in its consultation on the 

transposition of the AIFMD as well as, for full scope UK AIFMs, the proposed changes in 

CP1 and the Level 2 Regulation. This is because these changes will take place whether or 

not we make our rules, so the incremental effects of our rules will be limited to effects that 

would not have arisen under these changes. 

Summary of the impacts 

6. To help readers, here we summarise the impacts on firms and on the market as a whole 

that we have identified. 

Compliance 

cost 

Regime for 

sub-threshold 

firms (of 

authorised 

AIFs) 

Prudential 

rules 

Affected firms One-off cost per 

firm 

Managers of subthreshold 

NURS/QIS 

Managers of subthreshold 

NURS/QIS 

Staff cost: £290 to 

£3,250 

Other costs: 

negligible to 

£15,000 

Ongoing cost per 

firm 

Negligible to 

£1,700, mainly 

staff costs 

Other impacts 

Improves investor 

protections 


confidence in 

participating in 

the market and 

choosing between 

alternative 

offerings 

Allows for better 

FCA oversight 

and application 

of necessary 

sanctions in 

the event of 

misconduct by 

AIFMs. 

N/A N/A None identified 

A1:2 Financial Services Authority March 2013

Annex 1 

March 2013 

Compliance 

cost 




firm 

FOS EEA AIFMs managing 

FSA-authorised AIFs, 

whether from a UK 

branch or via crossborder 

services 

EEA AIFMs managing 

unregulated UK 

collective investment 

schemes or carrying 

out additional noncore 

activities such 

as individual portfolio 

management, from a 

UK branch 

FSCS EEA AIFMs managing 

FSA-authorised AIFs, 

whether from a UK 

branch or via crossborder 

services 

Depositary 

issues 


firm 

N/A Case fee: in 

2013/14 the first 

25 cases are free, 

subsequent cases 

are £550 per case 

Administration 

cost to firms: 

around £300 per 

case referred to 

the FOS 

Annual FOS levy: 

£250 for AIFMs 

during 2012/13 

Redress costs: 

unable to quantify 

(a transfer from 

firms to claimants) 

N/A FSCS levy (includes 

base costs, 

specific costs and 

compensation costs 

as set out below) 

Compensation cost 

– limit of £50,000 

per claim is a 

transfer from firms 

to claimants 


Through the FOS, 

investors can get 

redress from fund 

managers in the 

event of losses 

incurred as a result 

of negligence 

or malpractice. 

Through the FSCS, 

investors may 

benefit from up 

to £50,000 per 

claimant in the 

event of losses 

caused by a firm 

failure (a transfer 

from firms to the 

claimants via FSCS 

levies). 


confidence in 

these markets and 

could marginally 

increase the 

quantity of 

appropriate 

transactions as 

consumers invest 

in AIFs. 

Consumers having 

access to redress 

through FOS can 

incentivise AIFMs 

to work in the 

best interest of 

their investors. 

May facilitate 

competition by 

ensuring that 

transactions that 

are economically 

equivalent (and 

most likely in the 

same economic 

market) face 

similar FOS/FSCS 

requirements. 

Depositaries of AIFs N/A N/A None identified 




Compliance 

cost 

Marketing 

and 

passporting 

Direct costs 


firm 


firm 

Passporting firms N/A £18,000 to 

£200,000, includes 

staff costs and 

external fees 

(legal advice) 


Annex 1 X 

Could increase 

competition and 

lower costs to UK 

investors in the 

UK 

Facilitate growth 

of smaller funds 

7. In the CBA to CP1, our initial estimate of the core costs of implementing AIFMD, over and 

above those which are business-as-usual, was £5m. This estimate was intended as a marker 

until the FSA programme and business analyst teams had more fully scoped one-off AIFMD 

implementation costs. The figure for one-off costs now stands at around £13.4m. This more 

fully takes account of: 

• scope changes given the extent of AIFMD regulation and categories of firms affected; 

• costs of bespoke IT changes to FSA systems (taking account also of the transition to 


• necessary operational changes to core regulatory processes such as AIFM authorisation, 

registration, supervision and reporting. The latter includes costs of mandatory reporting 

of AIFMD data by the FCA to ESMA; and 

• increased use of specialist resources for other operational aspects of AIFMD 

implementation. 

Compliance costs 

Affected firm populations 

8. The table below is from the Treasury’s impact assessment on the ‘Transposition of the 

Alternative Investment Fund Managers Directive’. 3 It shows a summary of the number of, 

and assets under management (AUMs) held by, UK AIFMs and the AIFs. These firm 

populations are referenced below where relevant. 

3 Note that the Treasury impact assessment is still subject to change. 


Annex 1 

March 2013 



Above-threshold AIFM Sub-threshold AIFM Total 

AIFMs AIFs 

AUM 

(£m) AIFMs AIFs 

AUM 

(£m) AIFMs AIFs 

AUM 

(£m) 

NURS 47 623 90,255 10 252 2,585 57 875 92,840 

QIS 3 50 4,240 1 1 49 4 51 4,289 

UCIS 246 292 335,797 370 423 40,404 616 715 376,201 

...of which 

Private 

Equity 

Investment 

Cos 

....of which 

internally 

managed 

88 116 87,527 111 84 9,676 199 200 97,204 

40 151 61,407 89 211 9,717 129 362 71,124 

8 8 13,178 20 20 1,270 28 28 14,447 

1. Regimes for sub-threshold AIFMs 

9. There are two main policy changes that are relevant for sub-threshold AIFMs. First, 

whether or not they should be subject to the approved persons regime; and second, whether 

to apply Level 1 and 2 requirements to NURS and QIS in this category. 

i) Approved persons regime 

10. The Treasury has decided that the FSA approved persons regime should not apply to subthreshold 

AIFMs and full scope UK AIFMs that are internally-managed closed-ended 

investment companies. The minimum required by the Directive should be applied instead. 

So there are no incremental costs for the approval of individuals for these firms, compared 

to the baseline minimum Directive requirements. 

11. For other entities within the scope of the Directive, there are no changes to the approved 

persons regime, if compared with the status quo. 

ii) Level 1 and 2 requirements for sub-threshold NURS and QIS 

12. We are consulting on the basis that the detailed Level 1 and Level 2 AIFMD requirements 

will, in part, apply to sub-threshold AIFMs of NURS and QIS. The areas where we do not 

propose to apply the Level 1 and Level 2 requirements reflect the limitations on the FCA 

rule-making powers which the Treasury has consulted on. A summary of these requirements 

can be found in section 3. We estimate this will affect 11 AIFMs (10 NURS managers, 1 

QIS manager). 

13. To estimate the costs that such firms will incur, we approached a number of firms in this 

category. Our discussions indicated that firms that manage NURS or QIS also tend to be 




Annex 1 X 

managers of UCITS schemes and apply similar standards to them. They indicated that the 

cost of extending these requirements to include NURS and QIS funds would be of 

minimal significance. 

14. However, some firms that we contacted indicated there could be some incremental costs 

from the leverage requirements, reporting requirements and the need to apply for a 

variation of permission. On the whole, they felt that these costs would not be significant, as 

set out in the table below. 4 

Requirement One-off costs per firm On-going costs per firm 

Leverage requirement £0 to £1,500 , mainly staff 

costs. 

Reporting requirements (costs 

depend on reporting frequency) 

Negligible costs: up to 4 staff 

days (£1,200 4 ) and other 

compliance costs of up to 

£10,000. 

Variation in permissions 1 to 2 days (an estimated cost 

of between £290 and £580) and 

other non-staff costs from £0 to 

£5,000. 

£0 to £500 annually, mainly 

staff costs. 

Negligible costs: up to around 4 

staff days annually (£1,200). 

15. In addition to asking firms directly, we have assessed the costs of changing prudential 

requirements on such firms by looking at regulatory returns. We understand that these 

firms are already calculating capital for all of their funds under the strict MiFID rules, 

which are similar to the AIFMD rules. The additional requirement under AIFMD is 

professional indemnity insurance, which these firms indicated they already hold. So we do 

not expect a shortfall in capital and no additional costs are expected to arise. 

COBS and SYSC changes 

16. The amendments to SYSC and COBS requirements are set out in Chapter 3. These changes 

are mainly aimed at maintaining the status quo and as such do not impose significant 

incremental costs on affected firms. 

2. Prudential rules 

17. We could not identify any shortfall in capital resources for affected small authorised UK 

AIFMs of authorised AIFs, so no costs are expected to materialise as a result of changes in 

prudential rules. 

4 We based this and the other estimates of staff costs on an annual salary of a compliance officer of £52,000 plus overheads at 

30 per cent, giving a daily rate of about £290. 

A1:6 Financial Services Authority March 2013 

N/A

Annex 1 

March 2013 



18. Additional changes to the Handbook (e.g. deleting UPRU) and additional guidance aim to 

provide clarity to firms and reduce duplication in the Handbook. As such, these changes do 

not impose additional incremental costs on firms. 

3. Consumer redress: FOS and FSCS 

19. The FOS and FSCS regimes are additional to the requirements of the AIFMD. In this area, 

we propose to extend FOS and FSCS cover to EEA AIFMs managing FSA-authorised AIFs, 

whether from a UK branch or via cross-border services. In the case of the FOS, we also 

propose to extend coverage to EEA AIFMs managing UK unregulated collective investment 

schemes or carrying out additional non-core activities 5 , such as individual portfolio 

management, from a UK branch. We are unable to estimate how many firms will fall under 

these categories. 

20. As outlined in the CP text, we will not be extending FOS and FSCS cover to AIFMs which 

manage closed ended investment companies. Also we do not plan to extend FSCS cover to 

AIFMs managing non-UK AIFs, or to extend FOS and FSCS cover to include depositaries 

acting for unauthorised AIFs (except in relation to charity funds). 

Direct costs to FSA, FOS and FSCS 

21. Direct costs to the FSA relate to (i) the cost of collecting the annual levy for the FSCS and 

FOS and (ii) the cost of supervising the compliance of firms subject to the FOS with the 

FSA’s complaints-handling rules. These costs are not likely to be significant. 

22. The FOS and the FSCS may incur additional costs if our proposals result in an increase in 

the number of complaints or claims referred to them. Additionally, it may cost the FOS and 

the FSCS more to deal with an EEA AIFM without a physical presence in the UK than a 

firm which has an establishment in the UK. However, we do not expect these proposals to 

have a significant impact on volumes of complaints or claims, and note that historically the 

numbers of complaints to the FOS and claims from the FSCS about fund management have 

been low. Any increase in such costs will be recovered from the industry through the 

relevant fees and levies. 

Compliance costs from extending FOS 

23. The total cost to a firm of being within the jurisdiction of the FOS depends on the volume 

of complaints it receives. The FOS has proposed that in 2013/14 each firm will benefit from 

25 free cases, after which it will have to pay a fee of £550 for each case. In addition to this, 

we estimate that the administrative costs to the firm of dealing with complaints at the FOS 

will be £300 per case (see CP11/10, footnote 32). We expect the number of new complaints 

to be very small. FOS complaints generally relate to advice in respect of investment in funds 

5 This refers to the activities in Article 6(4) AIFMD. 




Annex 1X 

rather than their management. Indeed, only 2% of complaints in 2011/12 (around 5,000) 

related to fund managers and stockbrokers, and we would expect EEA AIFMs covered by 

the FOS to be a small proportion of all fund managers covered. 

24. Firms subject to the FOS must pay an annual levy. Under the fee rates for 2012/13, an 

AIFM would have paid £250. 

25. The costs to firms of applying the requirements on complaints handling are likely to be minimal 

(e.g. minimal costs in terms of IT system changes, complaints reporting and handling). 

26. Where the FOS decides the firm must provide redress to consumers, this is a transfer from 

the firm to the consumer. The size of this transfer depends on the volume and size of 

successful firm complaints. 

Compliance costs from extending FSCS 

27. Firms subject to FSCS must pay levies to fund it. The FSCS levy can be made up of three 

components: base costs, specific costs and compensation costs. The precise method by 

which FSCS levies are calculated can be found in the FEES module of the FSA’s Handbook, 

but a firm’s share of the levy is broadly based on the amount of business it does. 

28. The base costs levy covers the basic costs of running the FSCS, irrespective of its level of 

activity. The specific costs levy covers the administrative costs of paying claims in the relevant 

subclass (in this case, the Investment Provision subclass 6 ). The levy payable will depend on 

the likelihood of a firm (or firms) defaulting in the Investment Provision subclass, the 

subsequent volume of claims, and the amount of compensation paid under each claim. 

Historically, there have not been many compensation claims in relation to the default of a 

fund manager, so we do not expect a material increase to this element of the levy. 

29. The compensation cost is, in effect, a transfer between different sets of consumers (via firms 

paying the resulting levies) rather than a net economic cost or benefit. Each claimant can 

get up to a maximum of £50,000. The total compensation costs cannot be reliably 

estimated, as it depends on the number of claimants and size of their claims. 

30. Additionally, firms will have to report information to the FSCS on their annual eligible 

income. We expect the cost of this to be minimal. 

4. Depositary issues 

31. We discuss two main issues in relation to depositaries in this CP. The first relates to the 

regime for depositaries of sub-threshold AIFMs, the second concerns the application of 

CASS 6 to depositaries of AIFs. 

6 This subclass is currently known as the Fund Management subclass but will be renamed from 1 April 2013 under our policy set out 

in CP13/1, FSCS Funding Model Review – feedback on CP12/16 and further consultation. 


Annex 1 

March 2013 



32. Overall costs for depositaries (and the impact they may have on costs for AIFMs) have 

been discussed in CP1. The fact that sub-threshold managers of NURS or QIS will be 

subject to depositary requirements does not change our original assessment. 

33. Overall, the proposed changes to CASS 6 reduce the regulatory burden on depositaries, 

compared to what we consulted on in CP1. There are two provisions which are additional 

to what they are currently subject to. These provisions relate to: 

• a depositary’s responsibility for a nominee company with respect to custody rules 

(CASS 6.2.4R); and 

• restrictions on a depositary recording legal title to its own applicable assets in the same 

name as that for safe custody asset (CASS 6.2.5R). 

34. However, our understanding is that CASS 6.2.4R should result in only very small costs, 

such that the overall costs to depositaries due to the application of CASS 6 will be lower 

than those considered in CP1. CASS 6.2.5R provides more flexibility to firms. 

35. The approach to requirements that apply to depositaries outside the scope of AIFMD (in 

particular, the conduct of business and systems and controls requirements) has been to replicate 

broadly the status quo. So we do not impose significant additional costs on such firms. 

5. Marketing and passporting 

36. Before an authorised UK AIFM can market a UK (or other EEA) AIF to professional 

investors in the UK or in another EEA Member State, it will have to notify us of its 

intention to do so. 7 The Directive sets out information that the UK AIFM will have to give 

us if it intends to market in the UK and in other Member States. 

37. Around 60% of firms that responded to the survey we sent out before publishing CP1 did 

not expect costs of more than minimal significance. Other firms are likely to incur 

significant internal staff costs, and costs from seeking legal and regulatory advice. Some 

firms estimated that, including staff time and external fees, annual ongoing costs could 

range between £18,000 and £200,000. One private equity firm noted that the requirement 

to notify us of material changes to the information an AIFM discloses could become 

administratively challenging and could substantially increase costs, for example if AIFMs 

are required to disclose iterative drafts of fund documents. 

38. Overall, we would expect firms to pass on the compliance costs to consumers in the long 

run, in the form of higher prices. However, the increase in costs is unlikely to result in 

significant changes in demand, given that they represent a small proportion of overall 

revenues. As such, we would not expect any significant impact on consumers being able to 

access AIFs. 

7 Articles 31 and 32 AIFMD 




Market impacts 

Annex 1 X 

39. The AIFMD and the Level 2 Regulation will affect firms’ business models and competition 

in the market for investment funds and depositary services, as well as prime brokers and 

valuation agents (as they provide services to AIFMs). A number of studies and reports have 

been produced to analyse the overall effects and the CBA contained in CP1 discussed them 

at a high level. For a description of such effects we refer the reader to CP1 and the sources 

it cites. 

40. In the following paragraphs we focus on the market impacts that are likely to result from 

the proposals discussed in this CP. So we focus our attention on three main areas: 

• the treatment of sub-threshold firms (and how this may impact the competitive 

environment); 

• the effects of the marketing passport on competition and on investors in the UK; and 

• the effects of the proposed extension of FSCS and FOS coverage. 

41. The proposals for the application of AIFMD requirements to sub-threshold firms aim to 

impose requirements that are not unduly burdensome for firms but that, at the same time, 

guarantee an appropriate level of investor protection. 

42. By applying the Level 1 and Level 2 requirements to sub-threshold NURS/QIS managers on 

a proportionate basis, we will give consumers confidence that they can rely on similar 

protections irrespective of the size of the fund in which they invest, which in effect increases 

the choice available to them. At the same time, small firms should not be over-burdened 

with requirements that may put them at a disadvantage. 

43. In the CBA of CP1, we highlighted that the increase in compliance costs might result in 

some firms withdrawing from the market. Our analysis shows that this is unlikely to be the 

case for sub-threshold NURS/QIS managers as, in most cases, the cost increases are likely to 

be minimal. Firms that manage sub-threshold authorised AIFs tend to manage UCITS funds 

as well and to apply similar standards to them. 

44. The marketing passport has the potential to increase competition and lower costs for UK 

investors, as outlined by the Treasury’s impact assessment published in its first consultation. 

The effect of passporting AIFs can work in the interest of UK consumers by exerting 

competitive pressure on UK domiciled funds. 

45. For UK AIFMs, the marketing passport also represents an opportunity to enter other EEA 

markets and attract business from other Member States. This may facilitate the growth of 

smaller funds and help them reach efficient economies of scale. 

46. The proposed extension of FSCS and FOS coverage may improve confidence in these markets, 

and could marginally improve the quantity of transactions as consumers invest in AIFs. 


Annex 1 

March 2013 



47. Also, extending FOS and FSCS cover to include EEA AIFMs managing FSA-authorised 

AIFs, could facilitate competition by ensuring that transactions that are economically 

equivalent (and most likely in the same economic market) face similar requirements. This is 

because investors in such AIFs will enjoy the same protections regardless of where the 

AIFM is established within the EEA. 

Benefits 

48. The overall benefits relating to the AIFMD have been outlined in the CBA in CP1. We said 

that the benefits could not be assessed quantitatively, due to the scale of the changes and 

the uncertainties over the impacts of the Directive. We face a different set of issues in the 

quantification of the benefits of the proposals discussed in this CP, i.e. that it is very 

difficult to disentangle their impacts from those that would result from the overall changes 

due to the AIFMD. However, we briefly discuss below what benefits are likely to result 

from the proposals in this CP. 

49. The application of Level 2 requirements to sub-threshold NURS and QIS managers should 

enhance investor protection. Investors should benefit from the disclosure and operational 

requirements (a full summary of the Level 2 requirements can be found in chapter 3). 

According to the Treasury’s estimates of affected firms, this will result in over £2.6bn of 

assets benefitting from increased protection. 

50. The authorisation and registration requirements should allow the FCA to achieve a better 

oversight of newly authorised firms and to receive more useful information from firms that 

are already authorised. The FCA will be able to apply necessary sanctions in the event of 

misconduct by AIFMs. Additionally, the FCA will be able to prevent new AIFMs that do 

not meet our threshold conditions from becoming authorised. 

51. As mentioned above, the marketing passport should benefit investors by enhancing 

competition in the market. 

52. The extension of FOS and FSCS coverage to include EEA AIFMs managing FSA-authorised 

AIFs, should benefit consumers if they seek redress from the AIFM in the event of losses 

incurred as a result of negligence or malpractice. It is not possible to estimate the value of the 

redress that consumers might receive, because these firms are not currently covered by the 

regime. However, the overall number of complaints in this area is likely to be small. In any case, 

this should incentivise AIFMs to work in the best interests of investors in the AIFs they manage. 

53. Under the terms of the FSCS, investors who are eligible claimants may benefit in the event 

of a firm’s default by up to £50,000 per claimant. The potential total compensation cannot 

be reliably estimated, as it would depend on the number of claimants and the size of valid 

claims. The extension of FOS and FSCS coverage should provide the same protection for 

investors in an authorised fund regardless of where the AIFM is established, and should 

therefore minimise distortions in the market given that consumers will enjoy similar 

protections irrespective of the location of the AIFM and the type of authorised fund in 

which they invest. 


Annex 2 

List of consultation 

questions 

March 2013 



Q1: Do you have any comments on the proposed PERG guidance? 

Q2: Do you agree with the proposed reporting frequency for subthreshold 

AIFMs and the proposed reporting period end dates 

for all AIFMs? 

Q3: Do you agree with the proposed application of rules and 

guidance in SYSC and COBS to full-scope AIFMs? Are there 

any other matters that should be addressed in these 

sourcebooks? 



authorised UK AIFMs of authorised AIFs? 



authorised UK AIFMs of unauthorised AIFs? 

Q6: Do you agree with our proposed approaches to amending 

IPRU (INV) and deleting UPRU, as explained above? 






about the management of the company? 

Q8: Do you agree that investors in UCIS (except for CIFs and 

CDFs) should not be able to complain to the FOS or claim 

from the FSCS about the depositary of the fund? 



about the depositary of the fund? 

Q10: Do you agree that investors in CIFs and CDFs should be able 

to complain to the FOS or claim from the FSCS about the 

depositary of the fund (subject to the usual criteria)? 

Q11: Do you agree that the FOS’s compulsory jurisdiction and our 

complaints handling rules should cover AIFMs managing FCAauthorised 

funds, whether from the UK or the EEA? 

Q12: Do you agree that, where an AIFM is not managing an FCAauthorised 

fund, the FOS’s compulsory jurisdiction and our 

complaints handling rules should cover its activities where 

they are carried on from an establishment in the UK? 

Q13: Do you agree that an AIFM carrying out cross-border fund 

management activities should be required to be within scope 

of the FSCS, but only for the activity of managing an 

FCA-authorised fund? 

Q14: Do you agree that an EEA AIFM operating from a UK branch 

which is not required to be within scope of the FSCS should 

be eligible to obtain top-up cover? 

Q15: Do you agree with the proposed application of CASS and 

CASS-related Handbook provisions in relation to each type of 

depositary as noted above? If not, please provide reasons. 

Annex 2X 


Annex 2 

March 2013 



Q16: Do you have any comments on our proposed marketing 

guidance in PERG? Are there any other issues related to 

AIFMD marketing that should be included in the guidance? 

Q17: Do you have any comments on the information required 

on the forms for passporting? Are there any other matters 

relating to marketing under AIFMD that should be addressed 

in rules or guidance? 

Q18: Do you agree with the proposal to permit CDFs to be 

marketed to eligible charities? 


periodic fees for authorised AIFMs and depositaries? 


periodic fees for registered AIFMs? 

Q21: Do you agree with the proposed fees structure for recording 

and maintaining AIFs on the national private placement 

registers? 

Q22: Do you agree with the proposed new fee structure for 

recognised schemes? 

Q23: Do you agree with our proposed changes to the regimes for 

funding the FOS and FSCS? 


Annex 3 

March 2013 



Compatibility statement 

1. Since it is proposed that the draft rules included in this CP would be made by the FCA rather 

than the FSA, this Annex follows the requirements set out in section 138I of the Financial 

Services and Markets Act 2000 (FSMA) as amended by the Financial Services Act 2012. 

2. When consulting on new rules, the FCA is required by section 138I FSMA to include an 

explanation of why it believes making the proposed rules is compatible with its strategic 

objective, advances one or more of its operational objectives, and has regard to the 

regulatory principles in s.3B FSMA. The FCA is also required by s.138K(2) FSMA to state 

its opinion on whether the proposed rules will have a significantly different impact on 

mutual societies as opposed to other authorised persons. 

3. This Annex includes our assessment of the equality and diversity implications of these 

proposals. 

The FCA’s objectives and regulatory principles 

4. The proposals set out in this consultation are primarily intended to advance the FCA’s 

operational objective of consumer protection. With respect to sub-threshold firms, it is 

envisaged that consumers will obtain a greater or similar level of protection depending on 

the category of the sub-threshold firm. For example, managers of authorised funds will be 

subject to both existing regulatory requirements and the majority of the new AIFMD 

requirements which intend to enhance investor protection. 

5. We consider these proposals are compatible with the FCA’s strategic objective of ensuring 

that the relevant markets function well due to the appropriate level of protection which we 

believe they provide. For the purposes of the FCA’s strategic objective, ‘relevant markets’ 

are defined by s.1F FSMA. 

6. In preparing the proposals set out in this consultation, the FCA has had regard to the 

regulatory principles set out in s.3B FSMA. 




The need to use our resources in the most efficient and economic way 

Annex 3X 

7. This is the second CP transposing AIFMD in the UK. The CP approach allows us to consult 

in a timely manner, providing as much clarity as possible in preparation for implementation 

of AIFMD. Our approach to implementation is designed to ensure that we use our 

resources efficiently. These include using ‘intelligent copy-out’ wherever appropriate, i.e. 

adhering to the wording of the directive as closely as possible. 

The principle that a burden or restriction should be proportionate to 

the benefits 

8. Please refer to our CBA. 

The general principle that consumers should take responsibility for 

their decisions 

9. Although we are applying the FOS and FSCS, there are conditions associated with 

compensation (for example there is a limit for FSCS compensation) and compensation only 

covers factors outside of the consumer’s control (for example, default or mis-selling by the 

firm that the consumer cannot assess or predict when choosing a provider). Hence we do not 

expect that this extension will remove consumers’ responsibility for their financial decisions. 

The responsibilities of senior management 

10. Those categories of sub-threshold managers which are authorised by the FCA will be 

subject to rules and guidance on systems and controls, conflicts of interest and conduct of 

business, including specifically with respect to senior management. 

The principle that we should exercise our functions as transparently 

as possible 

11. We have engaged with firms throughout this process and kept them informed on the 

timelines we are working to. 

The desirability of publishing information relating to persons 

12. This principle is not relevant to this CP. 

The desirability of sustainable growth in the economy of the United Kingdom 

in the medium or long term 

13. Where we have discretion over proposed rules for sub-threshold managers, we believe the 

proposed rules are proportionate. Managers of UCIS and external managers appointed by 

AIFs that are not CIS, for example, will be subject to limited additional obligations under 


Annex 3 

March 2013 



the Directive. Overall, we believe our proposed rules for sub-threshold managers are in 

keeping with this principle. 

The desirability of exercising our functions in a way that recognises differences 

in the nature and objectives of businesses carried on by different persons 

14. Our proposed rules for sub-threshold managers differ depending on the type of manager in 

question, and recognise differences in the nature and objectives of their businesses. 

Expected effect on mutual societies 

15. We are not aware of any mutual societies within the scope of the proposed rules, and 

therefore do not expect the proposals to have a different impact in respect of mutual 

societies which are authorised persons compared to other authorised persons. 

Compatibility with the duty to promote effective competition in 

the interests of consumers 

16. In preparing the proposals as set out in this consultation, we have had regard to the FCA’s 

duty to promote effective competition in the interests of consumers and have sought to 

promote effective competition in so far as this is compatible with our consumer protection 

and integrity objectives. 

17. A number of the proposals potentially improve competition between firms. For example, 

the extension of FOS and FSCS to include EEA managers of FCA-authorised funds is likely 

to facilitate competition by ensuring that transactions are economically equivalent (and 

most likely in the same economic market) face similar requirements. Also, requirements for 

sub-threshold authorised funds means such funds will be treated in a manner that is similar 

to UCITS. 

Equality and diversity 

18. We are required under the Equality Act 2010 to ‘have due regard’ to the need to eliminate 

discrimination and to promote equality of opportunity in carrying out our policies, services 

and functions. As part of this, we conduct an equality impact assessment to ensure that the 

equality and diversity implications of any new policy proposals are considered. 

19. Aside from the issue identified below our equality impact assessment suggests that our 

proposals do not result in direct discrimination for any of the groups with protected 

characteristics i.e. age, disability, gender, pregnancy and maternity, race, religion and belief, 




Annex 3X 

sexual orientation and transgender, nor do we believe that our proposals should give to rise 

to indirect discrimination against any of these groups. We would nevertheless welcome any 

comments respondents may have on any equality issues they believe may arise. 

20. We are aware that our proposals to apply the FSCS only to AIFMs managing funds 

domiciled in the UK will mean it is less likely that non-UK investors would benefit from 

the compensation scheme. However, we have had to balance this against the need to 

apply the FSCS in a proportionate manner. 

Legislative and Regulatory Reform Act 2006 (LRRA) 

21. We are required under the LRRA to have regard to the principles in the LRRA and to the 

Regulators’ Compliance Code when determining general policies and principles and giving 

general guidance (but not when exercising other legislative functions). 

22. We have had regard to the principles in the LRRA and the Regulators’ Compliance Code 

for the parts of the proposals that consist of general policies, principles or guidance. We 

have engaged with firms throughout this process, and consider that the proposals are 

proportionate and result in an appropriate level of investor protection. 


Annex 4 

March 2013 



Prudential classification for 

investment fund managers 




Non-CIS AIF 1 (e.g. a company) 

CIS 

AIF 

Type of fund 

Unauthorised AIF 

Externally 

Internally managed 

managed nonnon-CIS 

AIF 

CIS AIF 

5 

Authorised AIF (NURS and 

QIS) 4 

UCITS 3 

Residual 

CIS 2 

Type of 

fund manager 

UCIS 

UCITS firm Full scope UK AIFM 

Internally managed 

AIF 

IPRU(INV) 11 

Small registered UK 

AIFM 

No prudential 

requirements apply 8 

CPM firm 

IPRU(INV) 11 

Above the 

threshold 6 Investment 

management 

firm 

UCITS firm Small authorised UK AIFM 

IPRU(INV) 5 

Below the 

threshold 7 

Fund 

management 

activities 

only 

Investment management firm 

IPRU(INV) 5 

CPM firm 

IPRU(INV) 11 

UCITS investment 

firm 

N/A - internally 

managed AIFs are not 

allowed to carry out 

additional MiFID 

activities (see Article 

6(3) AIFMD). 

AIFM investment firm 

CPMI firm 

GENPRU/BIPRU 

AIFM investment firm Small authorised UK AIFM 

BIPRU 

limited 

licence firm 

GENPRU/ 

BIPRU 

Above the 

threshold 


firm 

Additional 

MiFID 

activities 9 

BIPRU limited licence firm 

GENPRU/BIPRU 

CPMI firm 

GENPRU/BIPRU 

Below the 

threshold 

1 

Non-CIS AIFs are alternative investment funds that are not collective investment schemes. 

2 

Residual CIS are arrangements which fall within the definition of a collective investment scheme in s.238 FSMA, but which are not UCITS or AIFs. 

3 

A firm can manage both a UCITS and an AIF, in which case it will be either a CPM firm or a CPMI firm depending on whether it undertakes additional MiFID activities. 

4 

A firm can manage both an authorised AIF and an unauthorised AIF in which case it will be a CPM firm or CPMI firm depending on whether it undertakes additional MiFID activities. 

Annex 4X 

A4:2 Financial Services Authority March 2013 

5 To simplify matters, it has been assumed for the purposes of this table that an internally managed AIF will not be structured as a collective investment scheme. 

6 AIFMD sets a threshold of assets under management of the AIFM of €100m for leveraged AIFs; and €500m for unleveraged AIFs with no redemptions for 5 years. 

7 

The thresholds are only relevant for AIFs. 

8 

Registered small UK AIFMs are not authorised persons. 

9 

These are the MiFID activities allowed by Article 6(4) AIFMD.

Annex 5 

March 2013 



Summary of FOS and FSCS 

coverage of cross-border 

activities 

Table 1: FOS and FSCS coverage of cross-border activities of incoming EEA managers 

Activity EEA AIFM operating from branch in UK EEA AIFM operating from home state 

Managing a UK 

authorised fund 

(UCITS/NURS/QIS) 

Managing an 

unregulated UK CIS 

Individual portfolio 

management activities 

under Article 6(4) 

AIFMD 

FOS coverage: YES 

FSCS coverage: YES 


FSCS coverage: Only if firm tops up 


FSCS coverage: Only if firm tops up 



FOS coverage: NO 

FSCS coverage: NO 






Table 2: FOS and FSCS coverage of UK managers of non-UK funds 

Activity UK AIFM operating from branch in EEA UK AIFM operating from UK 

Managing an EEA fund 

(UCITS or non-UCITS 

fund) 

Managing a non-EEA 

fund 

Individual portfolio 

management activities 

under Article 6(4) AIFMD 













Annex 5X 


Appendix 1 



Draft Handbook text

ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE 

INSTRUMENT 2013 

Powers exercised by the Financial Conduct Authority 

1 

Appendix 

A. The Financial Conduct Authority makes this instrument in the exercise of the 

following powers and related provisions in the Financial Services and Markets Act 

2000 (“the Act”): 

(1) the following sections of the Act: 

(a) section 137A (The FCA’s general rules); 

(b) section 137B (FCA general rules: clients’ money, right to rescind etc) 

(c) section 137H (General rules about remuneration); 

(d) section 137R (Financial promotion rules); 

(e) section 137T (General supplementary powers); 

(f) section 138D (Actions for damages); 

(g) section 139A (Power of the FCA to give guidance); 

(h) section 213 (The compensation scheme); 

(i) section 214 (General); 

(j) section 223 (Management expenses); 

(k) section 226 (Compulsory jurisdiction); 

(l) section 234 (Industry funding); 

(m) section 238 (Restrictions on promotion); 

(n) section 247 (Trust scheme rules); 

(o) paragraph 23 (Fees) of schedule 1ZA (The Financial Conduct 

Authority); 

(p) paragraph 19 (Establishment), 20 (Services) and 20C (Notice of 

intention to market an AIF) of schedule 3 (EEA Passport Rights); and 

(q) paragraph 13(4) (FCA’s procedural rules) of schedule 17 (The 

Ombudsman Scheme) to the Act; 

(2) the other rule and guidance making powers listed in Schedule 4 (Powers 

exercised) to the General Provisions module of the FSA’s Handbook; and 

(3) regulation 6(1) of the Open-Ended Investment Companies Regulations 2001 

(SI 2001/1228). 

B. The rule-making powers referred to above are specified for the purpose of section 

138G(2) (Rule-making instruments) of the Act. 

C. The Financial Conduct Authority also makes this instrument in the exercise of the 

following powers of directions in the Alternative Investment Fund Managers 

Regulations 2013: 

(1) regulation 20 (Disclosure obligations of small registered UK AIFMs); 

(2) regulation 59 (AIFs managed by small third country AIFMs); and

(3) regulation 61 (Applications for approval). 

Commencement 

2 

Appendix 

D. This instrument shall come into force on 22 July 2013, except for Part II of Annex G 

and Part II of Annex J which shall come into force on 22 July 2014. 

Making the Investment Funds sourcebook (FUND) 

E. The Financial Conduct Authority makes the rules and gives the guidance in Annex A 

to this instrument. 

Amendments to the Handbook 

F. The modules of the FCA’s Handbook of rules and guidance listed in column (1) 

below are amended in accordance with the Annexes to this instrument listed in 

column (2) below. 

(1) (2) 

Glossary of definitions Annex B 

Principles for Businesses (PRIN) Annex C 

Senior Management Arrangements, Systems and Controls sourcebook 

(SYSC) 

Annex D 

Fees manual (FEES) Annex E 

General Prudential sourcebook (GENPRU) Annex F 

Prudential sourcebook for UCITS Firms (UPRU) Annex G 

Interim Prudential sourcebook for Investment Businesses (IPRU(INV)) Annex H 

Conduct of Business sourcebook (COBS) Annex I 

Client Assets sourcebook (CASS) Annex J 

Supervision manual (SUP) Annex K 

Dispute Resolution: Complaints sourcebook (DISP) Annex L 

Compensation sourcebook (COMP) Annex M 

Amendments to the Perimeter Guidance manual (PERG) 

G. PERG is amended in accordance with Annex N. The general guidance in PERG does 

not form part of the Handbook. 

Notes 

H. In the Annexes to this instrument, the “notes” (indicated by “Note:”) are included for 

the convenience of readers but do not form part of the legislative text. 

European Union Legislation 

I. Although European Union legislation is reproduced in this instrument, only European 

Union legislation printed in the paper edition of the Official Journal of the European 

Union is deemed authentic.

Citation 

3 

Appendix 

J. This instrument may be cited as the Alternative Investment Fund Managers Directive 

Instrument 2013. 

K. The sourcebook in Annex A to this instrument may be cited as the Investment Funds 

sourcebook (FUND). 

By order of the Board of the Financial Conduct Authority 

[date]

Annex A 

Making the Investment Funds sourcebook (FUND) 

4 

Appendix 

Note to reader: The amendments proposed in this Annex are based on the version of FUND 

proposed in CP 12/32 (Implementation of the Alternative Investment Fund Managers 

Directive) 

In this Annex, underlining indicates new text and striking through indicates deleted text 

unless otherwise stated. 

In FUND 1 insert the following new sections. The text is not underlined. 

1 Introduction [To follow] 

1.1 Application and purpose 

Application 

1.1.1 R (1) The application of this sourcebook is summarised at a high level in 

the following table. The detailed application is provided in each 

chapter. 

Type of firm Applicable chapters 

full scope UK AIFM of an 

unauthorised AIF 

full scope UK AIFM of an 

authorised AIF 

full scope UK AIFM of an EEA 

AIF 

full scope UK AIFM of a non- 

EEA AIF 

small authorised UK AIFM of 

an authorised AIF 

small authorised UK AIFM of 

an unauthorised AIF 

incoming EEA AIFM branch 

of a UK AIF 

depositary of an AIF managed 

by a full scope UK AIFM or a 

small authorised UK AIFM 

Chapters 1, 3 and 10 




Chapter 1, 3 and Appendix 1 

Chapter 1 


Chapter 1, 3 and Appendix 1

5 

Appendix 

(2) A residual CIS operator is not subject to the requirements in FUND. 

(3) FUND 10 will apply to a UK AIFM or incoming EEA AIFM which 

intends to passport or market on a cross-border basis. 

Compatibility with European law 

1.1.2 R A rule in the Handbook which conflicts with either a rule which transposes 

AIFMD or a provision in the AIFMD level 2 regulation is modified to the 

extent necessary to be compatible with European law. 

Interaction between the investment funds sourcebook (FUND) and the collective 

investment scheme sourcebook (COLL) 

1.1.3 G A full scope UK AIFM of an authorised AIF and a small authorised UK 

AIFM of an authorised AIF will be subject to the requirements in both FUND 

and COLL. The effect of FUND 1.1.2R is that if a rule in COLL which is 

applicable to a UK AIFM, an ICVC that is an AIF, or a UK depositary of an 

AIF conflicts with either a rule in FUND which transposes AIFMD or the 

AIFMD level 2 regulation, the COLL rule is modified to the extent necessary 

to be compatible with the FUND rule or the AIFMD level 2 regulation. 

1.2 Structure of the investment funds sourcebook 

Structure of the investment funds sourcebook 

1.2.1 G FUND is structured as follows: 

(1) FUND 1 sets out the broad application of FUND and describes the 

types of fund manager to which FUND applies. 

(2) [A description of FUND 2 will follow when this section in FUND is 

introduced] 

(3) FUND 3 sets out the baseline requirements that apply to all full scope 

UK AIFM. 

[A description of FUND 4 to 9 will follow when the relevant sections 

in FUND are introduced] 

(10) FUND 10 sets out the requirements that apply to an AIFM that 

operates on a cross-border basis. 

1.3 Types of fund manager 

Types of fund manager within the scope of European legislation 

1.3.1 G The UK regulatory regime provides that an undertaking which manages an

6 

Appendix 

AIF or UCITS in the United Kingdom and is within the scope of AIFMD or 

the UCITS Directive must fall into one or both of the following categories: 

(1) an AIFM; or 

(2) a UCITS management company. 

Types of fund manager outside the scope of European legislation 

1.3.2 G An authorised person that operates a collective investment scheme in the 

United Kingdom and falls entirely outside the scope of AIFMD or the UCITS 

Directive will be a residual CIS operator. 

AIFMs 

1.3.3 G (1) An AIFM with a Part 4A permission of managing an AIF will be a 

UK AIFM and must fall into at least one of the following categories: 

(a) a full scope UK AIFM; 

(b) a small authorised UK AIFM of an authorised AIF; and 

(c) a small authorised UK AIFM of an unauthorised AIF. 

(2) An AIFM is permitted under FUND 1.4.3R(3) to (6) to provide 

certain additional services. Where an AIFM falling within (1) carries 

on those services it is also an AIFM investment firm and subject to 

additional requirements in respect of those services. 

Full scope UK AIFM 

1.3.4 G (1) A full scope UK AIFM is a UK AIFM which is authorised in 

accordance with AIFMD and therefore subject to its full 

requirements. 

(2) A full scope UK AIFM must be either: 

(a) an external AIFM; or 

(b) an internally managed AIF. 

(3) PERG 16, question 3.6 provides guidance on where an AIFM is 

acting as an external AIFM or an internally managed AIF. 

Small authorised UK AIFM and registered AIFM 

1.3.5 G (1) AIFMD provides that an AIFM which has assets under management 

below certain thresholds (a “small AIFM”) may be subject to limited 

requirements under AIFMD. However, this is subject to the right of 

EEA States to impose stricter requirements. 

(2) In the United Kingdom the regulatory regime provides that a small

7 

Appendix 

AIFM with a registered office in the United Kingdom may be either: 

(a) a small registered UK AIFM; or 

(b) a small authorised UK AIFM. 

(3) A small registered UK AIFM will not be carrying on a regulated 

activity in respect of its activities as an AIFM. Under [regulation 12] 

of the AIFMD UK Regulation in order for a small AIFM to be 

included on the small AIFM register it must: 

(a) have a registered office in the United Kingdom; 

(b) not be the AIFM of any other AIF; 

(c) be internally managed; and 

(d) be a body corporate that is not a collective investment scheme. 

(4) A small authorised UK AIFM will be carrying on the regulated 

activity of managing an AIF and will be subject to FCA rules in 

respect of that activity. The application of FCA rules to a small 

authorised UK AIFM will depend on whether it manages an 

authorised AIF or an unauthorised AIF. A key difference is that a 

small authorised UK AIFM which manages an authorised AIF will be 

subject to the requirements in FUND 3 and COLL, whereas a small 

authorised UK AIFM of an unauthorised AIF will not be subject to 

either FUND 3 or COLL. 

(5) A small registered UK AIFM or a small authorised UK AIFM may 

also opt in to the full requirements in AIFMD. In the event that either 

a small registered UK AIFM or a small authorised UK AIFM opts in 

to AIFMD it will become a full scope UK AIFM. 

1.4 AIFM business restrictions 

Single AIFM 

1.4.1 R A UK AIFM must ensure that for each AIF it is appointed to manage, it is the 

only AIFM of that AIF. 

[Note: article 5 of AIFMD] 

Internally managed AIFs 

1.4.2 R An internally managed AIF must not engage in any activities other than 

AIFM management functions in respect of that AIF. 

[Note: article 6(3) of AIFMD]

External AIFMs 

8 

Appendix 

1.4.3 R An external AIFM that is a full scope UK AIFM or a small authorised UK 

AIFM of an authorised AIF must not engage in any activities other than: 

(1) AIFM management functions in respect of the AIFs it manages; 

(2) the additional management of UCITS subject to authorisation under 

the UCITS Directive; 

(3) the management of portfolios of investments in accordance with 

mandates given by investors on a discretionary client-by-client basis, 

including the management of portfolios of investments for pension 

funds and institutions for occupation retirement provisions in 

accordance with article 19(1) of Directive 2003/41/EC; 

(4) investment advice; 

(5) safe-keeping and administration in relation to shares or units of 

collective investment undertakings; and 

(6) reception and transmission of orders in relation to financial 

instruments. 

[Note: article 6(2) and 6(4) of AIFMD] 

1.4.4 R An external AIFM that is a full scope UK AIFM or a small authorised UK 

AIFM of an authorised AIF must not provide: 

(1) only the services referred to in FUND 1.4.3R(3) to (6); or 

(2) only the services referred to in FUND 1.4.3R(4) to (6) without also 

having been authorised to provide the services in FUND 1.4.3R(3); or 

(3) only the AIFM management functions referred to in FUND 1.4.6G(2); 

or 

(4) the AIFM investment management function referred to in point 1(a) 

(portfolio management) of Annex I of AIFMD without also providing 

the AIFM investment management function referred to in point 1(b) 

(risk management ) of Annex I of AIFMD or vice versa. 

[Note: article 6(5) of AIFMD] 

1.4.5 G Where a full scope UK AIFM or small authorised UK AIFM of an authorised 

AIF carries on the activities in FUND 1.4.3R(3) and (4) in relation to assets 

which are not financial instruments and it is not carrying on the activities of 

managing investments or advising on investments the FCA will deem the 

firm as having been authorised to carry on such activities by virtue of their 

authorisation as an AIFM. However, in order for such an AIFM to be able to 

carry on the activity in FUND 1.4.3R(4) in relation to assets which are 

financial instruments or the activities in FUND 1.4.3R(5) and (6) they must

have a Part 4A permission to manage investments. 

AIFM management functions 

9 

Appendix 

1.4.6 G AIFM management functions are set out in Annex I of AIFMD as follows: 

2. Authorisation 

(1) the AIFM investment management functions of: 

(a) portfolio management; and 

(b) risk management; and 

(2) other functions that an AIFM may additionally perform in the course 

of the collective management of an AIF: 

(a) administration: 

(i) legal and fund management accounting services; 

(ii) customer enquiries; 

(iii) valuation and pricing (including tax returns); 

(iv) regulatory compliance monitoring; 

(v) maintenance of unit/share holder register; 

(vi) distribution of income; 

(vii) unit issues and redemptions; 

(viii) contract settlements (including certificate dispatch); and 

(ix) record keeping; 

(b) marketing; and 

(c) activities related to the assets of AIFs, namely services 

necessary to meet the fiduciary duties of the AIFM, facilities 

management, real estate administration activities, advice to 

undertakings on capital structure, industrial strategy and related 

matters, advice and services relating to mergers and the 

purchase of undertakings and other services connected to the 

management of the AIF and the companies and other assets in 

which it has invested. 

[Note: Annex I of AIFMD]

[To follow] 

Amend the following as shown. 

3. Requirements for managers of alternative investment funds 

3.1 Application 

Application 

10 

Appendix 

3.1.1 G The application of this chapter is summarised in the following table; the 

detailed application is provided in each section. 

Type of firm Applicable sections 

Full scope UK AIFM of a UK AIF. All of chapter 3. 

Full scope UK AIFM of an EEA AIF 

operating from an establishment in 

the UK. 

Full scope UK AIFM of an EEA AIF 

operating from a branch in another 

EEA state. 

Incoming EEA AIFM branch which 

manages a UK AIF. 

Full scope UK AIFM of a non-EEA 

AIF marketed in the UK. 

Full scope UK AIFM of a non-EEA 

AIF not marketed in the UK. 

Small authorised AIFM of an 

authorised AIF. 

Depositary UK depositary of a UK 

AIF or a non-EEA AIF. 

3.2 Investor information 

All of chapter 3. 

All of chapter 3 with the exception of 

FUND 3.8 (Prime brokerage firms). 

FUND 3.8 (Prime brokerage firms). 


FUND 3.12 (Marketing in the home 

Member State of the AIFM). 


FUND 3.3 (Annual report of an 

AIF), and FUND 3.11 (Depositaries) 

and FUND 3.12 (Marketing in the 

home Member State of the AIFM). 

All of chapter 3. 

FUND 3.11 (Depositaries).

Application 

3.2.1 R This section applies to: 

(1) a full scope UK AIFM of: 

(1) 

(a) 

(2) 

(b) 

(3) 

(c) 

a UK AIF; 

an EEA AIF; and 

a non-EEA AIF; and 

(2) a small authorised UK AIFM of an authorised AIF. 

Prior disclosure of information to investors 

11 

Appendix 

3.2.2 R An AIFM must, for each UK AIF and EEA AIF that it manages, and for each 

AIF it markets in the EEA, make available to AIF investors, in accordance 

with the instrument constituting the fund, the following information before 

they invest in the AIF, as well as any material changes to it: 

… 

3.2.5 R An AIFM must, for each UK AIF and EEA AIF that it manages, and each 

AIF it markets in the EEA, disclose to investors periodically: 

… 

3.2.6 R An AIFM that manages a UK AIF and EEA AIF employing leverage or 

markets an AIF in the EEA that employs leverage must, for each such AIF, 

disclose on a regular basis: 

… 

3.3 Annual report of an AIF 

Application 

3.3.1 R (1) This section applies to a full scope UK AIFM of: 

(1) 

(a) 

(2) 

(b) 

(3) 

(c) 

a UK AIF; 


a non-EEA AIF marketed in the United Kingdom.

… 

12 

Appendix 

(2) With the exception of FUND 3.3.5R(5) and (6), this section also 

applies to a small authorised UK AIFM of an authorised AIF. 

3.4 Reporting obligations to the FCA 

Application 


… 


(1) 

(a) 

(2) 

(b) 

(3) 

(c) 

a UK AIF; 




3.4.4 R An AIFM must, for each UK AIF and EEA AIF it manages, and for each AIF 

it markets in the EEA, provide the following to the FCA: 

… 

3.6 Liquidity 

Application 



(1) 

(a) 

(2) 

(b) 

(3) 

(c) 

a UK AIF; 



(2) a small authorised UK AIFM of an authorised AIF.

… 

3.7 Risk management 

Application 


… 


(1) 

(a) 

(2) 

(b) 

(3) 

(c) 

a UK AIF; 




3.8 Prime brokerage firms 

Application 


… 

3.9 Valuation 


(a) a UK AIF; 

13 

Appendix 

(b) an EEA AIF managed or marketed from an establishment in 

the United Kingdom; and 

(c) a non-EEA AIF; and 

(2) an incoming EEA AIFM branch which manages or markets a UK 

AIF.; and 

(3) a small authorised UK AIFM of an authorised AIF.

Application 


… 

3.10 Delegation 


(1) 

(a) 

(2) 

(b) 

(3) 

(c) 

a UK AIF; 


a non-EEA AIF.; and 


Application 


… 

3.11 Depositaries 


(1) 

(a) 

(2) 

(b) 

(3) 

(c) 

a UK AIF; 



(2) a small authorised UK AIFM of an authorised AIF, 

14 

Appendix 

in relation to the delegation of those AIFM management functions for which 

it is responsible, other than supporting tasks such as administrative or 

technical functions. 

[Note: recital 31 of AIFMD]

Application 

3.11.1 R This section applies in accordance with the table in FUND 3.11.2R. 

3.11.2 R This table belongs to FUND 3.11.1R. 

Rule Full 

scope UK 

AIFM of 

a UK AIF 

or an 

EEA AIF 

3.11.3R x x 

Small 

authorised 


an 

authorised 

AIF 

Full 

scope 

UK 


a non- 

EEA AIF 

which is 

marketed 

in the 

UK 

15 

UK 

depositary of 

a UK AIF 

managed by 

a full scope 

UK AIFM or 

an EEA 

AIFM 

3.11.4R x x x x 

3.11.6R x x 

3.11.8R x x 

3.11.9R x x 

3.11.10R x x 

3.11.11R x x 

3.11.13R x x 

3.11.15R x x 

3.11.16R x x x x 

UK 


an 

authorised 

AIF 

managed by 

a small 

authorised 

UK AIFM 

3.11.17R x x x 

3.11.18R x x x 

3.11.20R x x x 

3.11.21R x x 

3.11.22R x x x 

3.11.23R x x 

3.11.25R x x 

Appendix 

UK 


a non-EEA 

AIF

3.11.26R x x 

3.11.29R x x 

3.11.30R x 

Note: "x" means "applies", but not every paragraph in every rule will necessarily apply. 

… 

16 

Appendix 

3.11.17 R A depositary must ensure that the AIF’s cash flows are properly monitored 

and that: 

... 

(2) all cash of the AIF has been booked in cash accounts opened: 

… 

… 

(b) at: 

(i) an entity referred to CASS 7.4.1R(1) to (3) 

(Depositing client money) a central bank; or 

(ii) a BCD credit institution; or 

(iii) a bank authorised in a third country; or 

3.12 Marketing in the home Member State of the AIFM 

Application 

(iv) another entity of the same nature, in the relevant 

market where cash accounts are required, provided 

that such entity is subject to effective prudential 

regulation and supervision which have the same 

effect as EU law and are effectively enforced and in 

accordance with the principles set out in article 16 

(safeguarding of client financial instruments and 

funds) of the MiFID Implementing Directive; and 

3.12.1 G This section applies to a full scope UK AIFM of: 

(1) a UK AIF; and 

(2) an EEA AIF. 

Marketing application 

3.12.2 D In accordance with regulation 56 (Marketing by authorised AIFMs) of the

… 

17 

Appendix 

AIFMD UK regulation, a full scope UK AIFM may apply to market in the 

United Kingdom a UK AIF or EEA AIF it manages by submitting a notice to 

the FCA in the form set out in FUND 3 Annex 1D. 

After FUND 9 insert the following new chapter. The text is not underlined. 

10 Operating on a cross-border basis [To follow] 

10.1 Application and purpose 

Application 

10.1.1 G (1) This chapter applies to the following types of firm in relation to the 

activities in (2): 

Purpose 

(a) a full scope UK AIFM; 

(b) a full scope EEA AIFM; 

(c) a non-EEA AIFM that is not a small AIFM; and 

(d) a non-EEA AIFM that is a small AIFM. 

(2) The activities to which this chapter relates are the management and 

marketing on a cross border basis, into or from the United Kingdom 

of: 

(a) a UK AIF; 

(b) an EEA AIF; and 

(c) a non-EEA AIF. 

10.1.2 G The purpose of this chapter is to provide guidance on the requirements that 

apply to the types of firm set out in FUND 10.1.1G when operating on a 

cross-border basis into or from the United Kingdom. 

Introduction 

10.1.3 G An AIFM operates on a cross-border basis when it manages or markets an 

AIF in an EEA State other than the state in which it has its registered office 

(which may include in certain cases a state which is a non-EEA State). 

10.1.4 G (1) AIFMD allows certain types of AIFM to operate on a cross-border 

basis using a passport. There are two types of passport that are 

provided for in AIFMD:

18 

Appendix 

(a) a management passport, which allows an AIFM to establish a 

branch in, or provide cross-border services into, another EEA 

State to manage an AIF; and 

(b) a marketing passport, which allows an AIFM to provide 

cross-border services into another EEA State to market an 

AIF to investors that are professional clients. 

(2) The following types of AIFM are allowed to operate on a crossborder 

basis using the management and marketing passport: 

(a) a full scope UK AIFM of: 

(i) a UK AIF; and 

(ii) an EEA AIF; and 

(b) a full scope EEA AIFM of: 

(i) a UK AIF; and 

(ii) an EEA AIF. 

10.1.5 G (1) AIFMD also contains specific provisions in relation to third country 

AIFs and AIFMs (i.e. in relation to non-EEA AIFs and non-EEA 

AIFMs). 

(2) In accordance with these provisions, the following types of AIFM are 

allowed to manage a non-EEA AIF from an EEA State: 

(a) a full scope UK AIFM; and 

(b) a full scope EEA AIFM. 

(3) In addition, EEA States may allow the marketing by the following 

types of AIFM in their territory only: 

(a) a full scope UK AIFM of a non-EEA AIF; 

(b) a full scope EEA AIFM of a non-EEA AIF; and 

(c) a non-EEA AIFM of: 

(i) a UK AIF; 

10.2 AIFM management passport 

(ii) an EEA AIF; and 

(iii) a non-EEA AIF.

Application 

10.2.1 G This section applies to: 

(1) a full scope UK AIFM that intends to manage an EEA AIF: 

(a) by establishing a branch in another EEA State; or 

(b) under the freedom to provide cross-border services; and 

(2) a full scope EEA AIFM that intends to manage a UK AIF: 

19 

Appendix 

(a) by establishing a branch in the United Kingdom (an incoming 

EEA AIFM branch); or 

(b) under the freedom to provide cross-border services. 

Management passport for full scope UK AIFMs 

10.2.2 G Information in relation to the use of the management passport by a full scope 

UK AIFM can be found in SUP 13 (exercise of passport rights by UK firms), 

which includes: 

(1) guidance on the conditions for establishing a branch to manage an 

AIF (SUP 13.3.2G); 

(2) guidance on the conditions for providing cross-border services to 

manage an AIF (SUP 13.4.2G); 

(3) the notice of intention that a full scope UK AIFM must submit to 

establish a branch (SUP 13 Annex 1R); 


provide cross-border services to manage an AIF (SUP 13 Annex 

8AR); 

(5) guidance in relation to changes to branches (SUP 13.6.9CG); and 

(6) guidance in relation to changes to cross-border services to manage 

an AIF (SUP 13.7.13G). 

Management passport for full scope EEA AIFMs 

10.2.3 G Information in relation to the use of the management passport by a full scope 

EEA AIF can be found in SUP 13A (Qualifying for authorisation under the 

Act) and SUP 14 (Incoming EEA firms changing details, and cancelling 

qualification for authorisation), which include: 

(1) guidance on the conditions for establishing a branch to manage an 

AIF (SUP 13A.4.1G); 

(2) guidance on the conditions for providing cross-border services to

manage an AIF (SUP 13A.5.3G); 

(3) guidance on the provisions of the Handbook that apply to an 

incoming EEA AIFM branch (SUP 13A Annex 1G); 

(4) guidance on the matters that are reserved to a firm’s Home State 

regulator (SUP 13A Annex 2G); 

(5) guidance in relation to changes to branches (SUP 14.2.15G and 

14.2.16G); and 

20 

Appendix 

(6) guidance in relation to changes to cross-border services to manage 

an AIF (SUP 14.3.8G and SUP 14.3.10G). 

10.3 AIFM marketing passport 

Application 

10.3.1 G This section applies to: 


(a) a UK AIF; and 

(b) an EEA AIF; 

that intends to market the AIF it manages in an EEA State other than 

the United Kingdom; and 

(2) a full scope EEA AIFM of: 

(a) a UK AIF; and 

(b) an EEA AIF; 

that intends to market the AIF it manages in the United Kingdom. 

Marketing passport for full scope UK AIFMs 

10.3.2 G Information in relation to the use of the marketing passport by a full scope 

UK AIFM can be found in SUP 13 (exercise of passport rights by UK firms), 

which includes: 


market an AIF (SUP 13.4.2FG); 


provide cross-border services to market an AIF (SUP 13 Annex 

8BR); and

21 

Appendix 

(3) guidance in relation to changes to cross-border services to market an 

AIF (SUP 13.7.14G). 

Marketing passport for full scope EEA AIFMs 

10.3.3 G Information in relation to the use of the marketing passport by a full scope 

EEA AIFM can be found in SUP 13A (Qualifying for authorisation under the 

Act) and SUP 14 (Incoming EEA firms changing details, and cancelling 

qualification for authorisation), which include: 


market an AIF (SUP 13A.5.3G); and 

(2) guidance in relation to changes to cross-border services to market an 

AIF (SUP 14.3.9G and SUP 14.3.10G). 

10.3.4 G In accordance with article 32(5) of AIFMD arrangements referred to in point 

(h) of Annex IV of AIFMD for the marketing of AIFs are subject to the laws 

and supervision of the Host State of the AIFM. This means that a full scope 

EEA AIFM that is marketing an AIF in the United Kingdom using the 

marketing passport should have regard to the financial promotions regime, 

as explained in PERG 8.37.5G(2) (Communications with investors in 

relation to draft documentation). 

Further guidance on marketing an AIF 

10.3.5 G Further guidance on marketing an AIF can be found in PERG 8.37 (AIFMD 

Marketing), which includes guidance on: 

(1) the circumstances in which a person markets an AIF in accordance 

with the AIFMD UK regulation; and 

(2) the circumstances in which a person is allowed by the AIFMD UK 

regulation to market an AIF. 

10.4 AIFM third country management 

Application 

10.4.1 G This section applies to a full scope UK AIFM of a non-EEA AIF that is not 

marketed. 

Applicable requirements 

10.4.2 G A full scope UK AIFM may manage a non-EEA AIF subject to the 

satisfaction of certain conditions. If the AIF is not marketed these 

conditions are that: 

(1) the AIFM complies with the full requirements of AIFMD in respect 

of that AIF except articles 21 (Depositaries) and 22 (Annual

eporting); and 

22 

Appendix 

(2) appropriate cooperation arrangements are in place between the 

competent authorities of the Home State of the AIFM and the 

supervisory authorities of the third country where the non-EEA AIF 

is established in order to ensure at least an efficient exchange of 

information that allows the competent authority of the Home State of 

the AIFM to carry out its duties in accordance with AIFMD. 

10.4.3 G As a result, a full scope UK AIFM of a non-EEA AIF that is not marketed is 

required to comply with: 

(1) all of FUND 3 with the exception of FUND 3.3 (Annual report of an 

AIF), FUND 3.11 (Depositaries) and FUND 3.12 (Marketing in the 

home Member State of the AIFM); and 

(2) such other provisions of other sourcebooks of the FCA Handbook as 

are applicable to a full scope UK AIFM. 

10.4.4 G If a full scope UK AIFM wishes to market in the United Kingdom a non-EEA 

AIF that it manages, the AIFM must comply with the requirements set out in 

FUND 10.5.3G to 10.5.5G (Article 36 register). 

10.5 National private placement 

Application 

10.5.1 G This section applies to the following types of AIFM that intend to market an 

AIF in the United Kingdom: 

(1) a full scope UK AIFM of a non-EEA AIF; 

(2) a full scope EEA AIFM of a non-EEA AIF; 

(3) a non-EEA AIFM that is not a small AIFM of: 

(a) a UK AIF; 


(c) a non-EEA AIF; and 

(4) a non-EEA AIFM that is a small AIFM of: 

(a) a UK AIF; 


(c) a non-EEA AIF.

National private placement registers 

23 

Appendix 

10.5.2 G AIFMD permits EEA States to allow the marketing in their territory only of 

non-EEA AIFs managed from an EEA State and AIFs managed from a non- 

EEA State, subject to certain conditions being met. This has been given 

effect in the United Kingdom by [Part 8 (Marketing)] of the AIFMD UK 

regulation. In accordance with these provisions, the FCA is required to 

maintain three registers, known as national private placement registers, 

which contain details of the AIFs that may be marketed in the United 

Kingdom. The table below summarises the types of AIF managed by the 

type of AIFM that can be marketed in the United Kingdom in accordance 

with these provisions and the relevant national private placement register for 

those AIFs. 

Type of AIF Type of AIFM Register 

non-EEA AIF full scope UK AIFM Article 36 register 

non-EEA AIF full scope EEA AIFM Article 36 register 

UK AIF 

EEA AIF 

Non-EEA AIF 

UK AIF 

EEA AIF 

Non-EEA AIF 

Article 36 register 

non-EEA AIFM that is 

not a small AIFM 

non-EEA AIFM that is a 

small AIFM 


Small third country 

AIFM register 

10.5.3 G In accordance with regulation 58 (Article 36 register) of the AIFMD UK 

regulation, a full scope UK AIFM and a full scope EEA AIFM may apply to 

market in the United Kingdom a non-EEA AIF it manages by submitting a 

notice to the FCA in the form set out in FUND 10 Annex 1D. 

10.5.4 G The FCA must approve the marketing of an AIF referred to in FUND 

10.5.3G and include the AIF on the Article 36 register if it appears to it that 

the following conditions are met: 

(1) subject to (2), the AIFM complies with the full requirements of 

AIFMD in respect of that AIF; 

(2) the AIFM is not required to comply with relevant provisions relating 

to article 21 (Depositaries) of AIFMD provided the AIFM: 

(a) ensures that an entity, other than the AIFM, is appointed to 

carry out the duties in article 21(7) to (9) of AIFMD; and 

(b) informs the FCA about the identity of entity;

24 

Appendix 

(3) appropriate cooperation arrangements for the purpose of systemic 

risk oversight and in line with international standards are in place 

between the FCA and the supervisory authorities of the relevant third 

country in order to ensure an efficient exchange of information that 

enables the FCA to carry out its duties in accordance with AIFMD; 

and 

(4) the third country where the non-EEA AIF is established is not listed 

as a Non-Cooperative Country and Territory by FATF. 

10.5.5 G (1) As a result, if approval has been given by the FCA for a non-EEA 

AIF managed by a full scope UK AIFM to be included on the Article 

36 register, the AIFM is required to comply with: 

(a) all of FUND 3 except certain sections of FUND 3.11 

(Depositaries) (as set out in FUND 3.11.30R (AIFM of a 

non-EEA AIF)) and FUND 3.12 (Marketing in the home 

Member State of the AIFM); and 

(b) such other provisions of other sourcebooks of the FCA 

Handbook as are applicable to a full scope UK AIFM of a UK 

AIF. 

(2) A full scope UK AIFM managing a non-EEA AIF should note that 

the rules it needs to comply with will change in relation to that AIF 

as a result of the AIF being marketed. In particular, such an AIFM 

will be subject to the annual report requirements in FUND 3.3 

(Annual report of an AIF) and some of the depositary provisions in 

FUND 3.11 (Depositaries) (as set out in FUND 3.11.30R (AIFM of a 

non-EEA AIF). 


10.5.6 G In accordance with regulation 60 (Article 42 register) of the AIFMD UK 

regulation, a non-EEA AIFM that is not a small AIFM may apply to market 

in the United Kingdom an AIF it manages by submitting a notice to the FCA 

in the form set out in FUND 10 Annex 2D. 


10.5.6G and include the AIF on the Article 42 register if it appears to it that 

the following conditions are met: 

(1) the AIF has a single AIFM; 

(2) the AIFM is a legal person; 

(3) the AIFM complies with the transparency provisions in articles 22 

(Annual report), 23 (Disclosures to investors) and 24 (Reporting 

obligations to competent authorities) of AIFMD; 

(4) if applicable, the AIFM complies with Part 7 (Private equity) of the

AIFMD UK regulation; 

25 

Appendix 

(5) appropriate cooperation arrangements for the purpose of systemic 

risk oversight and in line with international standards are in place 

between the FCA and the supervisory authorities of the country 

where: 

(a) the non-EEA AIFM is established; and 

(b) if applicable, the non-EEA AIF is established; and 

(6) the third country where the non-EEA AIFM or the non-EEA AIF is 

established is not listed as a Non-Cooperative Country and Territory 

by FATF. 

10.5.8 G As a result, if approval has been given by the FCA for an AIF to be included 

on the Article 42 register the AIFM is required: 

(1) to comply with FUND 3.2 (Investor information), FUND 3.3 

(Annual report of an AIF) and FUND 3.4 (Reporting obligations to 


(2) to report information to the FCA as provided for in SUP 16.18 

(AIFMD reporting); and 

(3) (where applicable) to comply with [Part 7 (Private Equity)] of the 

AIFMD UK regulation. 

Small third country register 

10.5.9 G In accordance with regulation 59 (AIFs managed by small third country 

AIFMs) of the AIFMD UK regulation, a non-EEA AIFM that is a small 

AIFM may apply to market in the United Kingdom an AIF it manages by 

submitting a notice to the FCA in the form set out in FUND 10 Annex 3D. 


10.5.9G and include the AIF on the small third country register if it appears 

to it that the following conditions are met: 

(1) the AIF has a single AIFM; 

(2) the AIFM is a legal person; and 

(3) the AIFM is a non-EEA AIFM that is a small AIFM. 

10.5.11 G As a result, if approval has been given by the FCA for an AIF to be included 

on the small third country AIFM register the AIFM is required to report 

information to the FCA as provided for in SUP 16.18 (AIFMD reporting). 

Further guidance on marketing an AIF 

10.5.12 G Further guidance on marketing an AIF can be found in PERG 8.37 (AIFMD

Marketing), which includes guidance on: 

26 

Appendix 

(1) the circumstances in which a person markets an AIF in accordance 

with the AIFMD UK regulation; and 

(2) the circumstances in which a person is allowed by the AIFMD UK 

regulation to market an AIF. 

10 Annex 1 National private placement register application – Article 36 register 

D This annex consists of one or more forms. Forms can be completed online 

now by visiting [FCA web address to follow] 

The forms are also to be found through the following address: 

AIFMD – National private placement register application – Article 36 

register - FUND Annex 1D 

10 Annex 2 National private placement register application – Article 42 register 




AIFMD – National private placement register application – Article 42 

register - FUND Annex 2D 

10 Annex 3 National private placement register application – small third country 

AIFM register 




AIFMD – National private placement register application – Small third 

country AIFM register - FUND Annex 3D 

Insert the following new appendix in FUND. The text is not underlined. 

Appendix 1 AIFMD level 2 regulation applicable to a small authorised UK AIFM 

and a depositary of an authorised AIF


1.1.1 R This appendix applies to: 

1.2 Purpose 

(1) a small authorised UK AIFM of an authorised AIF; and 

27 

Appendix 

(2) a depositary of a small authorised UK AIFM of an authorised AIF. 

1.2.1 G The purpose of this appendix is to apply those articles of the AIFMD level 2 

regulation set out in FUND App 1 1.4 to a small authorised UK AIFM of an 

authorised AIF and a depositary of an authorised AIF managed by a small 

authorised UK AIFM. 

1.2.2 G The following articles of the AIFMD level 2 regulation apply directly to a 

small authorised UK AIFM under European Union law: 

(1) articles [1 (Definitions)] to [5 (Information to be provided as part of 

registration)]; 

(2) article [110(1) and (6) (Reporting to competent authorities)]; and 

(3) article [117 (Entry into force)]. 

The other provisions in the AIFMD level 2 regulation do not apply directly 

to a small authorised UK AIFM under European Union law; however, the 

FCA applies those provisions set out in FUND App 1 1.4 as rules. 

1.2.3 G None of the AIFMD level 2 regulation applies directly to a depositary of an 

authorised AIF managed by a small authorised UK AIFM under European 

Union law; however, the FCA applies those provisions set out in FUND App 

1 1.4 as rules. 

1.3 Limitations on FCA rule making powers 

1.3.1 G (1) Regulation [21 (Application of FCA rules to small authorised UK 

AIFMs managing an authorised AIF)] of the AIFMD UK regulation 

specifies that a rule which has the same effect as a provision in the 

AIFMD level 2 regulation in relation to the following does not apply 

to a small authorised UK AIFM in respect of its management of an 

authorised AIF: 

(a) specifying the conditions under which the AIFM shall be 

deemed to have delegated its functions to the extent that it 

becomes a letter-box entity and can no longer be considered 

to be the manager of an AIF as set out in article 20.3 of 

AIFMD; or 

(b) supplementing articles 22 to 24 (transparency provisions).

28 

Appendix 

(2) Therefore the FCA has not applied the following articles of the 

AIFMD level 2 regulation to a small authorised UK AIFM of an 

authorised AIF: 

(a) article [82 (Letter-box entity and AIFM no longer considered 

to be managing an AIF)]; 

(b) articles [103 (General principles for the annual report) to [109 

(Regular disclosures to investors)]; and 

(c) article [110(2) to (5) and (7) (Reporting to competent 

authorities)]; and 

(d) article [111 (Use of leverage on a ‘substantial basis’)]. 

1.4 Applicable provisions of AIFMD level 2 regulation 

1.4.1 R The articles of the AIFMD level 2 regulation specified to apply as rules in 

the table below apply as rules in the form set out in the AIFMD level 2 

regulation as of 22 July 2013 to: 

(1) a small authorised UK AIFM of an authorised AIF in the same way 

in which they are applicable to a full scope UK AIFM; and 

(2) a depositary of an authorised AIF managed by a small authorised 

UK AIFM in the same way in which they are applicable to a 

depositary of a UK AIF managed by full scope UK AIFM. 

Article Title Application to 

a small 

authorised 

UK AIFM 

1 Definitions Directly 

applicable 

2 Calculation of the total value of assets under 

management 

3 On-going monitoring of assets under 

management 

Directly 

applicable 

Directly 

applicable 

4 Occasional breach of the threshold Directly 

applicable 

5 Information to be provided as part of 

registration 

6 General provisions on the calculation of 

leverage 

Directly 

applicable 

Applies as a 

rule 

Application to 

a depositary 

Not applicable 





Not applicable

7 Gross method for calculating the exposure of 

the AIF 

8 Commitment method for calculating the 

exposure of an AIF 

29 

Applies as a 

rule 

Applies as a 

rule 

9 Methods of increasing the exposure of an AIF Applies as a 

rule 

10 Conversion methodologies for derivative 

instruments 

Applies as a 

rule 

11 Duration netting rules Applies as a 

rule 

12 Professional liability risks Applies as a 

rule 

13 Qualitative requirements addressing 

professional liability risks 

Applies as a 

rule 

14 Additional own funds Applies as a 

rule 

15 Professional indemnity insurance Applies as a 

rule 

Appendix 










16 General obligations for competent authorities Not applicable Not applicable 

17 Duty to act in the best interests of the AIF or 

the investors in the AIF and the integrity of 

the market 

Applies as a 

rule 

18 Due diligence Applies as a 

rule 

19 Due diligence when investing in assets of 

limited liquidity 

20 Due diligence in the selection and 

appointment of counterparties and prime 

brokers 

Applies as a 

rule 

Applies as a 

rule 

21 Acting honestly, fairly and with due skills Applies as a 

rule 

22 Resources Applies as a 

rule 

23 Fair treatment of investors in the AIF Applies as a 

rule 







Not applicable

24 Inducements Applies as a 

rule 

25 Effective employment of resources and 

procedures – handling of orders 

26 Reporting obligations in respect of execution 

of subscription and redemption orders 

27 Execution of decisions to deal on behalf of 

the managed AIF 

28 Placing orders to deal on behalf of AIFs with 

other entities for execution 

30 

Applies as a 

rule 

Applies as a 

rule 

Applies as a 

rule 

Applies as a 

rule 

29 Aggregation and allocation of trading orders Applies as a 

rule 

30 Types of conflicts of interest Applies as a 

rule 

31 Conflicts of interest policy Applies as a 

rule 

32 Conflicts of interest related to the redemption 

of investments 

33 Procedures and measures preventing or 

managing conflicts of interest 

Applies as a 

rule 

Applies as a 

rule 

34 Managing conflicts of interest Applies as a 

rule 

35 Monitoring conflicts of interest Applies as a 

rule 

36 Disclosure of conflicts of interest Applies as a 

rule 

37 Strategies for the exercise of voting rights Applies as a 

rule 

38 Risk management systems Applies as a 

rule 

39 Permanent risk management function Applies as a 

rule 

40 Risk management policy Applies as a 

rule 

Appendix 

















Not applicable

41 Assessment, monitoring and review of the 

risk management systems 

42 Functional and hierarchical separation of the 

risk management function 

31 

Applies as a 

rule 

Applies as a 

rule 

43 Safeguards against conflicts of interest Applies as a 

rule 

44 Risk limits Applies as a 

rule 

45 Risk measurement and management Applies as a 

rule 

46 Liquidity management system and procedures Applies as a 

rule 

47 Monitoring and managing liquidity risk Applies as a 

rule 

48 Liquidity management limits and stress tests Applies as a 

rule 

49 Alignment of investment strategy, liquidity 

profile and redemption policy 

Applies as a 

rule 

50 Definitions Applies as a 

rule 

51 Requirements for retained interest Applies as a 

rule 

52 Qualitative requirements concerning sponsors 

and originators 

53 Qualitative requirements concerning AIFMs 

exposed to securitisations 

Applies as a 

rule 

Applies as a 

rule 

54 Corrective action Applies as a 

rule 

55 Grandfathering clause Applies as a 

rule 

56 Interpretation Applies as a 

rule 

57 General requirements Applies as a 

rule 

Appendix 

















Not applicable

58 Electronic data processing Applies as a 

rule 

59 Accounting procedures Applies as a 

rule 

60 Control by the governing body, senior 

management and supervisory function 

32 

Applies as a 

rule 

61 Permanent compliance function Applies as a 

rule 

62 Permanent internal audit function Applies as a 

rule 

63 Personal transactions Applies as a 

rule 

64 Recording of portfolio transactions Applies as a 

rule 

65 Recording of subscription and redemption 

orders 

Applies as a 

rule 

66 Recordkeeping requirements Applies as a 

rule 

67 Policies and procedures for the valuation of 

the assets of the AIF 

Applies as a 

rule 

68 Use of models to value assets Applies as a 

rule 

69 Consistent application of valuation policies 

and procedures 

70 Periodic review of valuation policies and 

procedures 

Applies as a 

rule 

Applies as a 

rule 

71 Review of individual values of assets Applies as a 

rule 

72 Calculation of the net asset value per unit or 

share 

Applies as a 

rule 

73 Professional guarantees Applies as a 

rule 

74 Frequency of valuation of assets held by 

open-ended AIFs 

Applies as a 

rule 

Appendix 

















Not applicable

75 General principles Applies as a 

rule 

76 Objective reasons for delegation Applies as a 

rule 

77 Features of the delegate Applies as a 

rule 

78 Delegation of portfolio or risk management Applies as a 

rule 

79 Effective supervision Applies as a 

rule 

80 Conflicts of interest Applies as a 

rule 

81 Consent and notification of sub-delegation Applies as a 

rule 

82 Letter-box entity and AIFM no longer 

considered to be managing an AIF 

83 Contractual particulars Applies as a 

rule 

84 Criteria for assessing prudential regulation 

and supervision applicable to a depositary in a 

third country 

85 Cash monitoring – general requirements Applies as a 

rule 

33 

Appendix 








Not applicable Not applicable 

Applies as a 

rule 



86 Monitoring of the AIF’s cash flows Not applicable Applies as a 

rule 

87 Duties regarding subscriptions Applies as a 

rule 


88 Financial instruments to be held in custody Not applicable Applies as a 

rule 

89 Safekeeping duties with regard to assets held 

in custody 

90 Safekeeping duties regarding ownership 

verification and record keeping 

Not applicable Applies as a 

rule 

90(1) to (3) 

applies as a 

rule 

90(4) and (5) 

are not 

90(2) to (5) 

applies as a 

rule 

90(1) is not

91 Reporting obligations for prime brokers Applies as a 

rule 

92 Oversight duties – general requirements 92(2) and (4) 

applies as a 

rule 

93 Duties regarding subscription and 

redemptions 

34 

applicable applicable 

92(1) and (3) 

are not 

applicable 

Appendix 


92(1) to (3) 

applies as a 

rule 

92(4) is not 

applicable 


rule 

94 Duties regarding the valuation of shares/units Not applicable Applies as a 

rule 

95 Duties regarding the carrying out of the 

AIFM’s instructions 

96 Duties regarding the timely settlement of 

transactions 

97 Duties related to the AIF’s income 

distribution 


rule 


rule 

97(1)(b) 

applies as a 

rule 

97(1)(a), (1)(c) 

and (2) are not 

applicable 

Applies as a 

rule 

98 Due diligence Not applicable Applies as a 

rule 

99 Segregation obligation Not applicable Applies as a 

rule 

100 Loss of a financial instrument held in custody Applies as a 

rule 

101 Liability discharge under article 21(12) of 

Directive 2011/61/EU 

102 Objective reasons for the depositary to 

contract a discharge of liability 

100(1) and (3) 

to (5) applies as 

a rule 

100(2) is not 

applicable 


rule 


rule

35 

Appendix 

103 General principles for the annual report Not applicable Not applicable 

104 Content and format of the balance sheet or 

statement of assets and liabilities and of the 

income and expenditure account 


105 Report on the activities of the financial year Not applicable Not applicable 

106 Material changes Not applicable Not applicable 

107 Remuneration disclosure Not applicable Not applicable 

108 Periodic disclosure to investors Not applicable Not applicable 

109 Regular disclosure to investors Not applicable Not applicable 

110 Reporting to competent authorities 110(1) and (6) 

are directly 

applicable 

110(2) to (5) 

and (7) are not 

applicable 


111 Use of leverage on a ‘substantial basis’ Not applicable Not applicable 

112 Restrictions on the management of AIFs Not applicable Not applicable 

113 General requirements Not applicable Not applicable 

114 Mechanisms, instruments and procedures Not applicable Not applicable 

115 Data protection Not applicable Not applicable 

116 Exchange of information on the potential 

systemic consequences of AIFM activity 

117 Entry into force Directly 

applicable 



[Note: Articles of the AIFMD level 2 regulation marked as “Directly applicable” are shown 

for information only.] 

Insert the following schedules. The text is all new and is not underlined 

TP1 Transitional Provisions 

TP 1.1

Schedule 1 Record keeping requirements 

Sch 1.1 G 1 Record keeping requirements 

[to follow] 

Schedule 2 Notification requirements 

Sch 2.1 G 1 Notification requirements 

[to follow] 

Schedule 4 Powers exercised 

[to follow] 

Schedule 5 Rights of action for damages 

Sch 5.1 G 

Sch 5.2 G 

36 

Appendix 

The table below sets out the rules in FUND contravention of which by an 

authorised person may be actionable under section 138D of the Act (Actions 

for damages) by a person who suffers loss as a result of the contravention. 

If a Yes appears in the column headed For private person, the rule may be 

actionable by a private person under section 138D unless a Yes appears in 

the column headed Removed. A Yes in the column headed Removed 

indicates that the FCA has removed the right of action under section 138F(3) 

of the Act. If so, a reference to the rule in which it is removed is also given. 

In accordance with The Financial Services and Markets Act 2000 (Rights of 

Action) Regulations 2001 (SI 2001/2256), a private person is: 

(1) any individual, except when acting in the course of carrying on a 

regulated activity; and 

(2) any person who is not an individual, except when acting in the 

course of carrying on business of any kind; 

but does not include a government, a local authority or an international 

organisation. 

The column headed For other person indicates whether the rule is actionable 

by a person other than a private person, in accordance with those 

Regulations. If so, an indication of the type of person by whom the rule is 

actionable is given.

1. Actions for damages: Investment Funds sourcebook 

Chapter/ 

Appendix 

All rules in 

FUND 

Section/ 

Annex 

Schedule 6 Rules that can be waived 

[to follow] 

37 

Appendix 

Paragraph Right of action section 138D 

For 

private 

person? 

Remov 

ed 

Yes No No 

For other 

person

Annex B 

Amendments to the Glossary of definitions 

38 

Appendix 

Note to reader: The amendments proposed in this Annex are based on the version of the 

glossary proposed in CP 12/32 (Implementation of the Alternative Investment Fund 

Managers Directive) 

In this Annex, underlining indicates new text and striking through indicates deleted text, 


Insert the following new definitions in the appropriate alphabetical position. The text is not 

underlined. 

AIFM qualifier an EEA AIFM which is marketing, or has marketed¸ an AIF 

in the United Kingdom by virtue of: 

AIFMD host state 

requirements 

(a) exercising its EEA right to market under Schedule 3 of 

the Act (EEA Passport Rights); and 

(b) is not exercising a right to manage a UK AIF under 

Schedule 3 of the Act. 

the rules in the handbook which transpose articles 12 and 14 

of AIFMD and which fall under the responsibility of the Host 

State to supervise where an AIFM manages or markets an 

AIF through a branch in that EEA State, which are: 

(a) FUND 3.8; 

(b) SYSC 4.1.2CR; 

(c) SYSC 10.1.22R to SYSC 10.1.26R; 

(d) COBS 2.1.1R; and 

(e) COBS 2.1.4R. 

charity AIF an AIF constituted under: 

(a) the Church Funds Investment Measure 1958; or 

(b) section 96 of the Charities Act 2011; or 

(c) section 25 of the Charities Act (Northern Ireland) 1964; 

or 

(d) section 100 of the Charities Act 2011. 

closed-ended corporate AIF an AIF which is a body corporate and is not a collective 

investment scheme.

ESMA AIFMD Key Concepts 

Guidelines 

ESMA’s guidelines on key concepts of the AIFMD 

(Document/../..) 

full scope EEA AIFM an EEA AIFM which is authorised by its Home State in 

accordance with article 6(1) of AIFMD. 

39 

Appendix 

incoming EEA AIFM an incoming EEA firm which is an AIFM and exercising its 

rights under AIFMD. 

internally managed 

corporate AIF 

a closed-ended corporate AIF which is: 

(a) an internally managed AIF; or 

(b) a small authorised UK AIFM where the legal form of 

the UK AIF permits internal management and where 

the AIF’s governing body chooses not to appoint an 

external AIFM. 

residual CIS operator a firm with a Part 4A permission to carry on the activity 

specified in article 51ZE of the Regulated Activities Order. 

small AIFM an AIFM which meets the conditions in regulation [11] 

(meaning of small AIFM) of the AIFMD UK regulation. 

small authorised UK AIFM a UK AIFM which: 

(a) is a small AIFM; and 

(b) has not opted in to AIFMD in accordance with article 

3(4) of AIFMD to become a full scope UK AIFM. 

small registered UK AIFM a small AIFM that is registered by the FCA in accordance 

with regulation [12] of the AIFMD UK regulation. 

supervisory authority (1) (in relation to a non-EEA AIF) the national authority or 

authorities of the non-EEA State empowered by law or 

regulation to supervise AIFs in that non-EEA State. 

[Note: article 4(1)(al) of AIFMD] 

(2) (in relation to a non-EEA AIFM) the national authority 

or authorities of the non-EEA State empowered by law 

or regulation to supervise AIFMs in that non-EEA 

State. 

[Note: article 4(1)(am) of AIFMD] 

unauthorised fund a fund which is not an authorised fund. 

UK depositary a depositary that is established in the United Kingdom.

Amend the following definitions as shown. 

40 

Appendix 

* Indicates a definition which has been amended from the version consulted on in CP12/32 

(Implementation of the Alternative Investment Fund Managers Directive). 

advising on investments (1) (except in SUP 10 (Approved Persons) and APER) the 

regulated activity, specified in article 53 of the 

Regulated Activities Order (Advising on investments), 

which is in summary: advising a person if the advice 

is: 

applicable asset … 

(a) given to the person in his capacity as an investor 

or potential investor, or in his capacity as agent 

for an investor or a potential investor; and 

(b) advice on the merits of his doing any of the 

following (whether as principal or agent): 

(i) buying, selling, subscribing for or 

underwriting a particular investment which 

is a security or relevant investment (that is, 

any designated investment, funeral plan 

contract, pure protection contract, general 

insurance contract or right to or interests 

in a funeral plan contract); or 

(ii) exercising any right conferred by such an 

investment to buy, sell, subscribe for or 

underwrite such an investment. 

(2) (in SUP 10 (Approved Persons) and APER) the 

regulated activity, specified in article 53 of the 

Regulated Activities Order (Advising on investments). 

For these purposes advising on investments includes 

any activities that would be included but for the 

exclusion in Article 72G (Managers of UCITS and 

AIFs) of the Regulated Activities Order. 

(b) in relation to safeguarding and administering 

investments that is not MiFID business, acting as a 

depositary of a UCITS, and/or acting as a depositary 

of an AIF, a designated investment. 

*AIF custodial assets financial instruments of an AIF that that can be: 

(a) registered in a financial instruments account opened in

*AIFM investment firm a firm which: 

*collective portfolio 

management firm 

the depositary’s books; or 

(b) physically delivered to the depositary. 

41 

Appendix 

[Note: recital [100] and articles [88 (Financial instruments to 

be held in custody)] and [89(3) (Safekeeping duties with 

regard to assets held in custody)] of the AIFMD level 2 

regulation.] 

(a) is: 

(i) a full scope UK AIFM; or 

(ii) a small authorised UK AIFM of an authorised 

AIF; or 

(ii) 

(iii) 

an incoming EEA AIFM branch; and 

(b) has a Part IV permission Part 4A permission (or an 

equivalent permission from its Home State regulator) 

for managing investments where: 

(i) the investments managed include one or more 

financial instruments; and 

(ii) the permission is limited to the activities 

permitted by article 6(4) of AIFMD as well as 

those permitted by article 6(2). 

a firm which: 

(a) (i) is a full scope UK AIFM (other than an internally 

managed AIF) or a small authorised UK AIFM 

of an authorised AIF; and 

(ii) does not have Part IV permission Part 4A 

permission to carry on any regulated activities 

other than those which are in connection with, or 

for the purpose of, the AIF AIFs or UCITS it 

manages; or 

(b) is a UCITS firm that has a Part IV permission Part 4A 

permission for managing a UCITS. 

… 

*competent authority …

control … 

42 

Appendix 

(9) (in relation to an AIFM) means a national authority in 

an EEA State which is empowered by law or 

regulation to supervise AIFMs. 

(2A) (in relation to a management company carrying on 

collective portfolio management or an AIFM) control 

as defined in articles 1 and 2 of the Seventh Council 

Directive 83/349/EEC (The Seventh Company Law 

Directive). 

custody asset (1) Other than in relation to acting as a depositary of an 

AIF: 

*depositary (1) (except in LR): 

(a) a designated investment held for or on behalf of 

a client; 

(b) any other asset which is or may be held with a 

designated investment held for, or on behalf of, 

a client 

(2) In relation to acting as a depositary of an AIF. in 

CASS 6: 

(a) an AIF custodial asset held by a depositary in 

accordance with FUND [3.11.18R (Depositary 

functions: safekeeping of financial 

instruments)]; or 

(b) any other asset of an AIF in respect of which a 

depositary exercises safe-keeping functions in 

accordance with FUND [3.11.20R (Depositary 

functions: safekeeping of other assets)]. 

… 

(c) (in relation to any other unit trust scheme other 

than an AIF specified in (e)) the person holding 

the property of the scheme on trust for the 

participants; 

… 

(d) (in relation to any other collective investment 

scheme fund other than an AIF specified in (e)) 

any person to whom the fund property subject 

to the scheme is entrusted for safekeeping.;

designated investment 

business 

… 

43 

Appendix 

(e) (in relation to an AIF managed by a full scope 

UK AIFM (other than an AIF which is an 

ICVC or an AUT)) the person fulfilling the 

function of a depositary in accordance with 

article 21(1) of AIFMD or, in respect of a non- 

EEA AIF, in accordance with FUND 

3.11.30R(1)(a) (AIFM of a non-EEA AIF). 

any of the following activities, specified in Part II of the 

Regulated Activities Order (Specified Activities), which is 

carried on by way of business: 

... 

(n) agreeing to carry on a regulated activity in (a) to (h) 

and (m) (article 64).; 

(o) [deleted] 

(p) managing a UCITS; 

(q) acting as a depositary of a UCITS; 

(r) managing an AIF; 

(s) acting as a depositary of an AIF; 

(t) establishing, operating or winding up a collective 

investment scheme. 

*EEA AIF an AIF, other than a UK AIF, which: 

establishing, operating or 

winding up a collective 

investment scheme 

*full scope UK AIFM a UK AIFM which: 

(a) is authorised or registered in an EEA State under the 

applicable national law; or 

(b) an AIF which is not authorised or registered in an EEA 

State but has its registered office or head office in an 

EEA state; 

provided that if the AIF is a feeder AIF, the master AIF 

meets the conditions in (a) or (b). 

the regulated activity, specified in article 51(1)(a) or 51ZE of 

the Regulated Activities Order (Establishing etc. a collective 

investment scheme), of establishing, operating or winding up 

a collective investment scheme.

44 

Appendix 

(a) does not meet the conditions in regulation [x] of the 

AIFMD UK Regulation is not a small AIFM; or 

(b) meets the conditions in regulation 12 of the AIFMD 

UK Regulation is a small AIFM but has opted in to 

AIFMD in accordance with article 3(4) of AIFMD. 

*funds under management (in IPRU(INV) and GENPRU) funds managed by the firm, 

calculated as the sum of the absolute value of all assets of all 

funds managed by the firm, including assets acquired 

through the use of leverage, whereby derivative instruments 

shall be valued at their market value. including This includes 

funds where it the firm has delegated the management 

function but excluding excludes funds that it is managing as 

a delegate. 

Host State ... 

*instrument constituting the 

fund 

(5) (in relation to an AIFM) means either of the 

following: 

… 

(a) an EEA state, other than the Home State, in 

which an EEA AIFM or UK AIFM manages 

EEA AIFs or UK AIFs; or 

(b) an EEA state, other than the Home State, in 

which an EEA AIFM or UK AIFM markets 

units or shares of an EEA AIF or UK AIF; 

[Note: article 4(1)(r) of AIFMD] 

(bb) (in relation to an AIF other than an ICVC or an AUT) 

the fund rules, instrument of incorporation or other 

constituting documents of such an AIF; 

(c) (in relation to a collective investment scheme other 

than an authorised fund AIF or an EEA UCITS 

scheme a UCITS) any instrument to which the 

operator is a party setting out any arrangements with 

any other person relating to any aspect of the 

operation or management of the scheme. 

investment management firm (subject to BIPRU TP 1.3R (Revised definition of 

investment management firm for certain transitional 

purposes)), a firm whose permitted activities include 

designated investment business, which is not an authorised 

professional firm, bank, BIPRU investment firm, building 

society, collective portfolio management firm, credit union,

45 

Appendix 

energy market participant, friendly society, ICVC, insurer, 

internally managed AIF, media firm, oil market participant, 

service company, incoming EEA firm incoming EEA firm 

(without a top-up permission), incoming Treaty firm 

(without a top-up permission), UCITS management company 

or UCITS qualifier (without a top-up permission), whose 

permission does not include a requirement that it comply 

with IPRU-INV 3 or IPRU-INV 13 (Personal investment 

firms) and which is within (a), (b) or (c): 

… 

(c) … 

(ii) … 

(Ca) managing an AIF; 

… 

(Da) acting as the depositary of an AIF; 

(Db) acting as the depositary of a UCITS; 

… 

*marketing a direct or indirect offering or placement at the initiative of 

the AIFM or on behalf of the AIFM of units or shares of an 

AIF it manages to or with investors domiciled or with a 

registered office in the EEA. 1 

marketing (1) (in COLL) (in relation to marketing units in a 

regulated collective investment scheme in a particular 

country or territory): 

(a) communicating to a person in that country or 

territory an invitation or inducement to become, 

or offer to become, a holder in that regulated 

collective investment scheme; 

(b) giving advice on investments to, or arranging 

(bringing about) a deal in an investment for a 

person in that country or territory to become a 

holder in that regulated collective investment 

scheme. 

(2) (except in COLL) a direct or indirect offering or 

placement at the initiative of the AIFM or on behalf of 

the AIFM of units or shares of an AIF it manages to or 

with investors domiciled or with a registered office in 

the EEA. 

1 

The definition of marketing was included as a new definition in CP 12/32; the amendment is now incorporated 

into the existing definition of marketing.

[Note: article 4(1)(x) of AIFMD] 

participant firm (1) … a firm or a member other than: 

(a) … an incoming EEA firm which is: 

… 

… 

46 

Appendix 

(vi) an AIFM managing an unauthorised AIF or 

carrying on the activities of managing 

investments, advising on investments, 

safeguarding and administering 

investments or arranging (bringing about) 

deals in investments; 

(k) an AIFM qualifier. 

… 

personal investment firm (subject to BIPRU TP 1 (Revised definition of personal 

investment firm for certain transitional purposes)) a firm 

whose permitted activities include designated investment 

business, which is not an authorised professional firm, bank, 

BIPRU investment firm, building society building society, 

collective portfolio management firm, credit union credit 

union, energy market participant energy market participant, 

friendly society friendly society, ICVC ICVC, insurer 

insurer, internally managed AIF, media firm media firm, oil 

market participant oil market participant, service company 

service company, incoming EEA firm incoming EEA firm 

(without a top-up permission ), incoming Treaty firm 

(without a top-up permission), UCITS management company 

or UCITS qualifier (without a top-up permission), whose 

permission does not include a requirement that it comply 

with IPRU(INV) 3 (Securities and futures firms) or 5 

(Investment management firms), and which is within (a), (b) 

or (c): 

… 

proprietary trading (in SUP 10 (Approved Persons) and APER) dealing in 

investments as principal as part of a business of trading in 

specified investments. For these purposes dealing in 

investments as principal includes any activities that would 

be included but for the exclusion in Article 15 (Absence of 

holding out), or Article 16 (Dealing in contractually based 

investments) or, for a UK AIFM or UK UCITS management 

company, Article 72G (Managers of UCITS and AIFs) of the

Regulated Activities Order. 

47 

Appendix 

regulated activities (in accordance with section 22 of the Act (The classes of 

activity and categories of investment)) any of the following 

activities specified in Part II of the Regulated Activities 

Order (Specified Activities): 

… 

(n) acting as the depositary or sole director of an openended 

investment company (article 51(1)(c)) 

(na) managing a UCITS (article 51ZA); 

(nb) acting as a depositary of a UCITS (article 51ZB); 

(nc) managing an AIF (article 51ZC); 

(nd) acting as a depositary of an AIF (article 51ZD); 

(ne) establishing, operating or winding up a collective 

investment scheme (51ZE). 

safe custody asset (a) in relation to MiFID business, a financial 

instrument; or 

(b) in relation to safeguarding and administering 

investments that is not MiFID business and/or acting 

as a depositary of a UCITS, a safe custody 

investment.; or 

(c) in relation to acting as a depositary of an AIF, an 

AIF custodial asset. 

securities and futures firm (subject to BIPRU TP 1 (Revised definition of securities and 

futures firm for certain transitional purposes)) a firm whose 

permitted activities include designated investment business 

or bidding in emissions auctions, which is not an authorised 

professional firm, bank, BIPRU investment firm (unless it is 

an exempt BIPRU commodities firm), building society, 

collective portfolio management firm, credit union, friendly 

society, ICVC, insurer, internally managed AIF, media firm, 

service company, incoming EEA firm (without a top-up 

permission ), incoming Treaty firm (without a top-up 

permission), UCITS management company or UCITS 

qualifier (without a top-up permission), whose permission 

does not include a requirement that it comply with 

IPRU(INV) 5 (Investment management firms) or 13 

(Personal investment firms), and which is within (a), (b), (c), 

(d), (e), (f), (g) or (h):

… 

sub-fund … 

48 

Appendix 

(b) (in relation to a collective investment scheme fund that 

is not an authorised fund or an EEA UCITS scheme) 

any part of that scheme that is equivalent to (a). 

top-up cover cover provided by the compensation scheme for claims 

against an incoming EEA firm (which is a credit institution, 

an IMD insurance intermediary, an IMD reinsurance 

intermediary or , a MiFID investment firm, or a UCITS 

management company or an AIFM) in relation to the firm’s 

passported activities and in addition to, or due to the absence 

of, the cover provided by the firm’s Home State 

compensation scheme (see COMP 14 (Participation by EEA 

firms)) 

UCITS firm an firm which: 

*UK AIF an AIF that is: 

(a) is a management company, including where in addition 

the firm is also the operator of a collective investment 

scheme which is not a UCITS scheme an AIFM; and 

(b) does not have a Part IV permission Part 4A permission 

(or an equivalent permission from its Home State 

regulator) to carry on any regulated activities other 

than those which are in connection with, or for the 

purpose of, such schemes managing AIFs or UCITS. 

(a) an authorised fund; or 

(b) is not an authorised fund but has its registered office or 

head office in the United Kingdom; 

provided that if the AIF is a feeder AIF, the master AIF has 

its registered office or head office in an EEA State.

Annex C 

Amendments to the Principles for Businesses (PRIN) 

In this Annex, underlining indicates new text and striking through indicates deleted text. 

Application 

49 

Appendix 

1.1.1 G The Principles (see PRIN 2) apply in whole or in part to every firm. The 

application of the Principles is modified for firms conducting MiFID 

business, incoming EEA firms, incoming Treaty firms, and UCITS qualifiers 

and AIFM qualifiers. PRIN 3 (Rules about application) specifies to whom, to 

what and where the Principles apply. 

… 

3.1.1 R PRIN applies to every firm, except that: 

… 

(4) for a UCITS qualifier and AIFM qualifier, only Principles 1, 2, 3, 7, 

and 9 apply, and only with respect to the activities in PRIN 3.2.2R 

(Communication and approval of financial promotions); 

…

Annex D 

Amendments to the Senior Management Arrangements, Systems and Controls 

sourcebook (SYSC) 



1 Annex 1 Detailed application of SYSC 

... 

… 

Part 2 Application of the common platform requirements (SYSC 4 to 10) 

2.6A ... 

Who? 

50 

Appendix 

2.6B R Subject to SYSC 1 Annex 1 2.6CR, the common platform requirements do 

not apply to a full scope UK AIFM of an unauthorised AIF except for: 

(1) SYSC 4.1.1R to SYSC 4.1.2R; 

(2) SYSC 4.1.2BR to SYSC 4.1.2DR; 

(3) SYSC 4.2 (to the extent specified as applying in that section); 

(4) SYSC 6.1.1R, which only applies to the extent that it relates to the 

obligation to establish, implement and maintain adequate policies 

and procedures for countering the risk that the firm (including its 

managers and employees) might be used to further financial crime; 

(5) SYSC 6.1.4-AG; 

(6) SYSC 6.3; 

(7) SYSC 7.1.7BG; 

(8) SYSC 10.1 (to the extent specified as applying in that section); and 

(9) SYSC 10.2. 

2.6C R The common platform requirements apply to an AIFM investment firm 

(other than an incoming EEA AIFM branch) in respect of its MiFID 

business as they apply to a UCITS investment firm in accordance with 

Column A+ of Part 3. 

2.6D R The common platform requirements apply to a full scope UK AIFM of an 

authorised AIF and a small authorised UK AIFM of an authorised AIF in

accordance with column A++ of Part 3. 

51 

Appendix 

2.6E G The common platform requirements apply in respect of a small authorised 

UK AIFM of an unauthorised AIF in accordance with Column B of Part 3 

(unless such a firm is also a common platform firm, in which case they 

must comply with Column A). 

2.6F R The common platform requirements do not apply to an incoming EEA 

AIFM branch in respect of its management of a UK AIF, except for: 

... 

Where? 

… 

(1) those common platform requirements which are AIFMD host state 

requirements; 

(2) SYSC 6.1.1R which only applies to the extent that it relates to the 

obligation to establish, implement and maintain adequate policies 

and procedures for countering the risk that the firm (including its 

managers and employees) might be used to further financial crime; 

and 

(3) SYSC 6.3. 

2.16C R The common platform requirements apply to a full scope UK AIFM in 

respect of its management of an AIF where carried on from an 

establishment in the United Kingdom. 

2.16D R The common platform requirements, except those which are AIFMD host 

state requirements, apply to a full scope UK AIFM in respect of its 

management of an EEA AIF from a branch in another EEA State. 

2.16E R The common platform requirements apply to an AIFM investment firm in 

respect of its MiFID business where carried on from an establishment in 

the United Kingdom. 

2.16F R The common platform requirements, except the common platform 

requirements on financial crime and the common platform record-keeping 

requirements, apply to an AIFM investment firm in respect of its MiFID 

business where carried on from a branch in another EEA State. 

... 

Part 3 Tables summarising the application of the common platform requirements 

to different types of firm 

…

52 

Appendix 

3.2B R For a full scope UK AIFM of an authorised AIF and a small authorised UK 

AIFM of an authorised AIF, they apply in accordance with Column A++ in 

the table below. 

… 

… 

Provision 

SYSC 4 

COLUMN A 

Application to a 

common 

platform firm 

other than to a 

UCITS 

investment firm 

collective 

portfolio 

management 


SYSC 4.1.1R Rule but SYSC 

4.1.1R(2) applies 

only to a BIPRU 

firm 

COLUMN A+ 


UCITS 

management 

company 

Rule but SYSC 

4.1.1R(2) applies 


firm 

COLUMN A++ 


a full scope UK 

AIFM of an 


and a small 

authorised UK 



Rule but SYSC 

4.1.1R(2) 

applies only to a 

BIPRU firm 

COLUMN B 


all other firms 

apart from 

insurers, 

managing 

agents and the 

Society 

Rule but SYSC 

4.1.1R(2) 

applies only to 

a third country 

BIPRU firm 

SYSC 4.1.1AR Not applicable Not applicable Rule Not applicable 

SYSC 4.1.2R Rule Rule for a UCITS 

investment firm; 

otherwise 

guidance 

SYSC 4.1.2AG Not applicable Guidance for a 

UCITS firm; not 

applicable to a 


firm 

Rule Guidance 

Not applicable Guidance 

SYSC 4.1.2BR Not applicable Rule Rule Not applicable 

SYSC 4.1.2CR Not applicable Rule Rule Not applicable 

SYSC 4.1.2DR Not applicable Not applicable Rule Not applicable 

SYSC 4.1.3R Rule applies only 

to a BIPRU firm 

Rule for a UCITS 


otherwise not 

Not applicable Not applicable

applicable 

SYSC 4.1.4R Rule Rule Not applicable (1) and (3) 

Guidance 

(2) Rule 

SYSC 4.1.4AG Not applicable Not applicable Not applicable Guidance 


to a MiFID 





guidance 

53 

Appendix 

Rule Not applicable Not applicable 


SYSC 4.1.7R Rule Rule Not applicable Guidance 


SYSC 4.1.8G Guidance Guidance Guidance Guidance 

SYSC 4.1.9R Rule Rule Not applicable Not applicable 

SYSC 4.1.10R Rule Rule Not applicable Guidance - 

except 

reference to 

SYSC 4.1.9R 

which does not 

apply to these 

firms 

SYSC 

4.1.10AG 

Not applicable Not applicable Not applicable Guidance 




SYSC 4.2.1R Rule Rule Rule - UK branch of 

non-EEA bank 

- rule applies. 

- Other firms - 

Guidance 

SYSC 4.2.1AG Not applicable Not applicable Not applicable - Guidance

54 

Appendix 

SYSC 4.2.2R Rule Rule Rule - UK branch of 

a non-EEA 

bank - Rule 

applies 

SYSC 4.2.3G - 

SYSC 4.2.5G 


this provision 

does not apply 

Guidance Guidance Guidance - UK branch of 

a non-EEA 

bank - 

Guidance 




applicable 


these 

provisions do 

not apply 

Not applicable - UK branch of 

a non-EEA 

bank - Rule 

applies 


this provision 

does not apply 

SYSC 4.2.7R Not applicable Not applicable Rule Not applicable 

SYSC 4.2.8R Not Applicable Not applicable Rule Not applicable 

SYSC 4.2.9G Not Applicable Not applicable Guidance Not applicable 

SYSC 4.3.1R Rule Rule Not applicable Rule (but not 

applicable to 

incoming EEA 

firms, 

incoming 

Treaty firms or 

UCITS 

qualifiers) 

SYSC 4.3.2R Rule Rule Not applicable Guidance (but 

not applicable 

to incoming 

EEA firms, 

incoming 


UCITS 

qualifiers)

55 

Appendix 

SYSC 4.3.2AG Not applicable Not applicable Not applicable Guidance (but 


to incoming 

EEA firms, 

incoming 


UCITS 

qualifiers) 

SYSC 4.3.3G Guidance Guidance Not applicable Guidance (but 


to incoming 

EEA firms, 

incoming 


UCITS 

qualifiers) 

SYSC 4.4.1R Not applicable Not applicable Not applicable Rule applies 

this section 

only to: 

(1) an 

authorised 

professional 

firm in respect 

of its nonmainstream 

regulated 

activities 

unless the firm 

is also 

conducting 

other regulated 

activities and 

has appointed 

approved 

persons to 

perform the 

governing 

functions with 

equivalent 

responsibilities 

for the firm's 

nonmainstream 

regulated 


other regulated 

activities; 

(2) activities

56 

Appendix 

carried on by a 

firm whose 

principal 

purpose is to 

carry on 

activities other 

than regulated 


which is: 

(a) an oil 

market 

participant; 

(b) a service 

company; 

(c) an energy 

market 

participant; 

(d) a whollyowned 

subsidiary of: 

(i) a local 

authority; 

(ii) a registered 

social 

landlord; 

(e) a firm with 

permission to 

carry on 

insurance 

mediation 

activity in 

relation to noninvestment 

insurance 

contracts but 

no other 

regulated 

activity; 

(3) an 

incoming 

Treaty firm, an 

incoming EEA 

firm and a 

UCITS 

qualifier, (but 

only SYSC 

4.4.5R(2) 

applies for 

these firms);

57 

Appendix 

and 

(4) a sole 

trader, but 

only if he 

employs any 

person who is 

required to be 

approved 

under section 

59 of the Act 

(Approval for 

particular 

arrangements). 

SYSC 4.4.2G Not applicable Not applicable Not applicable Guidance only 

applying to the 

firms specified 

in SYSC 4.4.1R 

SYSC 4.4.3R Not applicable Not applicable Not applicable Rule only 








SYSC 4.4.5R Not applicable Not applicable Not applicable Rule only 








Provision 

SYSC 5 

COLUMN A 


common 

platform firm 


UCITS 


collective 

portfolio 

COLUMN A+ 


UCITS 

management 

company 

COLUMN A++ 





and a small 

authorised UK 



COLUMN B 



apart from 

insurers, 

managing 


Society

management 


SYSC 5.1.1R Rule Rule Not applicable Rule 


SYSC 5.1.3G Guidance Guidance Not applicable Guidance 


SYSC 5.1.4AG Guidance Guidance Guidance Guidance 



SYSC 5.1.6R Rule Rule Guidance Guidance 




guidance 

SYSC 5.1.7AG Not applicable Not applicable to 

a UCITS 



guidance 

58 

Guidance Guidance 

Guidance Guidance 



SYSC 5.1.10G Guidance Guidance Guidance, but 

not applicable in 

respect of the 

segregation of 

risk 

management 

functions 

Guidance 



SYSC 

5.1.12AG 



Appendix


SYSC 5.1.15G Not applicable Not applicable Not applicable Guidance 

Provision 

SYSC 6 

COLUMN A 


common 

platform firm 


UCITS 


collective 

portfolio 

management 


COLUMN A+ 


UCITS 

management 

company 

59 

COLUMN A++ 





and a small 

authorised UK 



SYSC 6.1.1R Rule Rule Rule but only to 

the extent it 

relates to the 

obligation to 

establish, 

implement and 

maintain 

adequate 

policies and 

procedures for 

countering the 

risk that the firm 

(including its 

managers and 

employees) 

might be used to 

further financial 

crime 

Appendix 

COLUMN B 



apart from 

insurers, 

managing 


Society 

Rule 




SYSC 6.1.3R Rule Rule Not applicable - Guidance 

- This 

provision shall 

be read with 

the following 

additional

60 

Appendix 

sentence at the 

start. 

"Depending on 

the nature, 

scale and 

complexity of 

its business, it 

may be 

appropriate for 

a firm to have 

a separate 

compliance 

function. 

Where a firm 

has a separate 

compliance 

function, the 

firm should 

also take into 

account 6.1.3R 

and 6.1.4R as 

guidance." 


SYSC 6.1.4R Rule Rule Not applicable (1) (3) and (4) 

Guidance 

(2) 

SYSC 6.1.4– 

AG 

Not applicable Not applicable Applies to a full 

scope UK 

AIFM, not 

applicable for a 

small authorised 

- Rule for 

firms which 

carry on 

designated 

investment 

business with 

or for retail 

clients retail 

clients or 


clients 


clients. 

- Guidance for 

all other firms. 

Guidance

61 

UK AIFM 

Appendix 

SYSC 6.1.4AR Not applicable Not applicable Not applicable Rule for firms 

which carry on 

designated 

investment 

business with 

or for retail 

clients or 


clients. 

SYSC 6.1.5R Rule Rule Not applicable - Guidance 

- "investment 

services and 

activities" shall 

be read as 

"financial 

services and 

activities" 

SYSC 6.1.6G Not applicable Not applicable Not applicable Guidance 

SYSC 6.1.7R Rule Not applicable Not applicable Not applicable 




SYSC 6.3.1R Rule Rule Rule Rule 








SYSC 6.3.9R Rule Rule Rule Rule



Provision 

SYSC 7 

COLUMN A 


common 

platform firm 


UCITS 


collective 

portfolio 

management 


COLUMN A+ 


UCITS 

management 

company 

62 

COLUMN A++ 





and a small 

authorised UK 



Appendix 

COLUMN B 



apart from 

insurers, 

managing 


Society 





guidance 


a UCITS 



guidance 



SYSC 7.1.2BG Not applicable Guidance Not applicable Not applicable 




guidance 




guidance 


a UCITS 



guidance 



Not applicable Guidance

SYSC 7.1.4BG Not applicable Not applicable to 

a UCITS 



guidance 




guidance 




guidance 




guidance 


a UCITS 



guidance 

SYSC 7.1.7BG Guidance applies 


firm 

Guidance for a 


firm; otherwise 


63 







full scope UK 


authorised AIF, 


applicable. 

Guidance 

SYSC 7.1.7CG Guidance Guidance Guidance Guidance 

SYSC 

7.1.8G(1), (2) 

(1) Guidance 

applies only to a 

BIPRU firm 

(2) Guidance 





(1) Guidance for a 




(2) Guidance 




applicable 




Not applicable (1) Not 

applicable 

Appendix 

(2) Guidance 


Not applicable Not applicable



SYSC 7.1.12G Guidance applies 


SYSC 7.1.13R 

- 7.1.16R 

SYSC 

7.1.16AG 

SYSC 

7.1.16BG 

Provision 

SYSC 8 

Rule applies to a 

BIPRU firm 

Guidance applies 




COLUMN A 


common 

platform firm 


UCITS 


collective 

portfolio 

management 


applicable 




applicable 








applicable 



firm otherwise not 

applicable 



firm otherwise not 

applicable 

COLUMN A+ 


UCITS 

management 

company 




64 

Appendix 






COLUMN A++ 





and a small 

authorised UK 



COLUMN B 



apart from 

insurers, 

managing 


Society 

Not applicable Guidance

guidance 


a UCITS 



guidance 

65 







guidance 




guidance 


a UCITS 



guidance 








guidance 




guidance 




guidance 




guidance 





Appendix




guidance 

SYSC 

8.1.11AG 

Not applicable Not applicable to 

a UCITS 



guidance 

66 




Appendix 

SYSC 8.1.13R Not applicable Rule Not applicable Not applicable 

SYSC 8.1.14G Not applicable Guidance Not applicable Not applicable 

SYSC 8.2 MiFID investment 

firms only 

SYSC 8.3 MiFID investment 

firms only 

Provision 

SYSC 9 

COLUMN A 


common 

platform firm 


UCITS 


collective 

portfolio 

management 



firms only 


firms only 

COLUMN A+ 


UCITS 

management 

company 



COLUMN A++ 





and a small 

authorised UK 



SYSC 9.1.1R Rule Rule Rule but only in 


requirement to 

arrange for 

orderly records 

to be kept of its 

business and 

internal 

organisation 

which do not 

relate to 

portfolio 

COLUMN B 



apart from 

insurers, 

managing 


Society 

Rule


in relation to 

MiFID business 




Rule applies only 



of a UCITS 


Rule applies only 





67 

transactions and 

subscription and 

redemptions 

orders 

Rule but only in 


records 

specified by the 

modified 

application of 

SYSC 9.1.1R 

Appendix 






SYSC 9.1.7G Guidance applies 

only in relation to 


Provision 

SYSC 10 

Column A 


common 

platform firm 


UCITS 


collective 

portfolio 

management 



only in relation to 




COLUMN A+ 


UCITS 

management 

company 


COLUMN A++ 





and a small 

authorised UK 




Column B 



apart from 

insurers, 

managing 


Society 


SYSC 10.1.3R Rule Rule Not applicable Rule

68 

Appendix 

SYSC 10.1.4R Rule Rule Not applicable Guidance - but 

applies as a 

rule in relation 

to the 

production or 

arrangement of 

production of 

investment 

research in 

accordance 

with COBS 

12.2, or the 

production or 

dissemination 

of nonindependent 

research in 

accordance 

with COBS 

12.3 

SYSC 

10.1.4AG 




applies as a 



production or 



investment 

research in 

accordance 

with COBS 

12.2 , or the 

production or 

dissemination 


research in 

accordance 

with COBS 

12.3 

SYSC 

10.1.6AG 

Not applicable Not applicable Not applicable Guidance



SYSC 

10.1.8AR 

Rule Rule Not applicable Rule 


69 

Appendix 


applies as a 



production or 



investment 

research in 

accordance 

with COBS 


production or 

dissemination 


research in 

accordance 

with COBS 

12.3 


applies as a 



production or 



investment 

research in 

accordance 

with COBS 


production or 

dissemination 


research in 

accordance 

with COBS 

12.3

SYSC 

10.1.11AG 

SYSC 

10.1.12G - 

SYSC 

10.1.15G 


Guidance Guidance for 

SYSC 10.1.12G; 

not applicable for 

SYSC 10.1.13G – 

SYSC 10.1.15G 

70 

Guidance for 

SYSC 10.1.12G; 


for SYSC 

10.1.13G – 

SYSC 10.1.15G 

SYSC 10.1.16R Not applicable Not applicable Not applicable Rule 

Guidance 

Appendix 


SYSC 

10.1.18G 

Not applicable Guidance Not applicable Not applicable 




SYSC 10.1.22R Not applicable Rule Rule Not applicable 










… 

7.1.2 

C 

… 

G A full scope UK AIFM and small authorised UK AIFM of an authorised AIF 

should be aware that FUND 3.7 and the AIFMD level 2 regulation (as 

applied by FUND App 1 1.4.1R(1) for a small authorised UK AIFM of an 

authorised AIF) contain further requirements in relation to risk management.

Additional guidance on governance arrangements 

71 

Appendix 

21.1.1 G (1) This chapter provides additional guidance on risk-centric governance 

arrangements for effective risk management. It expands upon the 

general organisational requirements in SYSC 2, SYSC 3, SYSC 4, and 

SYSC 7 and FUND 3.7, and so applies to the same extent as SYSC 

3.1.1R (for insurers, managing agents and the Society), FUND 3.7 

(for a full scope UK AIFM of an authorised AIF and small 

authorised UK AIFM of an authorised AIF) and SYSC 4.1.1R (for 

every other firm). 

(2) Firms should, taking account of their size, nature and complexity, 

consider whether in order to fulfil the general organisational 

requirements in SYSC 2, SYSC 3, SYSC 4, and SYSC 7 and (for a full 

scope UK AIFM of an authorised AIF and small authorised UK 

AIFM of an authorised AIF) FUND 3.7 their risk control 

arrangements should include: 

… 

TP 2 Firms other than common platform firms, insurers, managing agents and the 

Society 

(1) (2) (3) (4) (5) (6) 

… 

Material to 

which the 

transitional 

provision 

applies 

2.2 The changes to 

SYSC set out in 

Annex 

[amending 

SYSC] of the 

Alternative 

Investment Fund 

Managers 

Directive 

Instrument 2013 

Transitional provision Transitional 

provision: 

dates in force 

R (1) Where a firm meets the 

conditions in (2) the 

changes effected by the 

Annex listed in column (2) 

do not apply and therefore 

the provisions in SYSC 

amended by that Annex 

will continue to apply as 

they were in force as at 21 

July 2013. 

(2) the conditions are: (a) 

the firm falls within 

regulation 68(1) of the 

AIFMD UK regulation; and 

(b) the firm does not have a 

From 22 July 

2013 until 21 

July 2014 

Handbook 

provisions: 

Coming into 

force 

22 July 2013

2.3 SYSC 4.2.2R to 

SYSC 4.2.5G, 

SYSC 9.1.2R 

and SYSC 

9.1.3R 

Part 4A permission to 

manage an AIF. 

R A small authorised UK 

AIFM of an unauthorised 

AIF which, prior to 22 July 

2013, was a common 

platform firm must continue 

to comply with the 

provisions in column (2) in 

respect of its activities as an 

AIFM. 

72 

From 22 July 

2013 until 31 

July 2015 

Appendix 

22 July 2013

Annex E 

Amendments to the Fees manual (FEES) 


1 Fees Manual 

… 

Application 

1.1.2 R (2) FEES 1, FEES 2 and FEES 4 apply to: 

… 

(a) every firm (except an AIFM qualifier, ICVC or UCITS 

qualifier) 

… 

3 Application, Notification and Vetting Fees 

… 

3.2 Obligation to pay fees 

… 

73 

Appendix 

3.2.5 R (1) The appropriate authorisation or registration fee is an integral part of 

an application for, or an application for a variation of, a Part IV 

permission, or authorisation, registration or variation under the 

Payment Services Regulations or the Electronic Money Regulations, 

authorisation, recognition, notification or registration of an AIF or 

registration of a small registered UK AIFM. Any application 

received by the FSA without the accompanying appropriate fee, in 

full and without deduction (see FEES 3.2.1 R), will not be treated as 

an application made, incomplete or otherwise, in accordance with 

section 51(3)(a), or section 44, of the Act or regulation 5(3) or 12(3) 

of the Payment Services Regulations or regulation 5 or 12 of the 

Electronic Money Regulations or regulations 13(1) and 61(1)(a) of 

the AIFMD UK Regulations. Where this is the case, the FSA will 

contact the applicant to point out that the application cannot be 

progressed until the appropriate fee has been received. In the event 

that the appropriate authorisation fee, in full and without deduction, 

is not forthcoming, the application will be returned to the applicant 

and no application will have been made.

… 

3.2.7 

… 

3 Annex 

1R 

R Table of application, notification and vetting fees payable to the FCA 

(1) Fee payer (2) Fee payable Due date 

… … .. 

(d) Applicants for an 

authorisation order for, 

or recognition of, a 

collective investment 

scheme 

(e) The manager 

management company 

of a scheme making a 

notification under 

section 264 or section 


(ea) Applicants for 

approval of an AIF for 

marketing in the United 

Kingdom other than a 

UK AIFM or an EEA 

AIFM with a branch in 

the United Kingdom 

(eb) An applicant for 

registration on the 

register of small 

registered UK AIFMs 

which the FCA is 

required to maintain 

under regulation 12 of 

the AIFMD UK 

regulation 

FEES 3 Annex 2R, part 

1 part 2 

FEES 3 Annex 2R, part 

2 part 3 

FEES 3 Annex 2R part 

4 

74 

Appendix 

On or before the 

application is made 





£1000 On or before the 


… … … 

… 

Authorisation fees payable

3 Annex 

2R 

[FCA] 

… 

Moderately complex cases 

Activity grouping Description 

… 

A.7 Fund managers Portfolio managers 

75 

Appendix 

A.9 Operators, trustees and depositories of collective investment 

schemes, operators of personal pensions schemes and 

operators of stakeholder pension schemes 

… 

Managers and depositaries of investment funds, and operators 

of collective investment schemes or pension schemes 

Application and notification fees payable in relation to collective investment 

schemes 

Legislative 

provision 

Nature and 

purpose of fee 

Payable by Amount of fee 

(£) 

… … … … … 

Part 2 Application fees payable for firms to be subject to COLL 

Regulation 12 

of the OEIC 

Regulations 

Section 242 of 

the Act 

On 

application 

for an order 

declaring a 

scheme to be 

an ICVC, 

where the 

scheme is: 

… … … 

… … … 

On 

application 

for an order 

declaring a 

scheme to be 

… … … 

Umbrella 

factor



Part 3 – (notifications) 

… 

an AUT, 


scheme is: 

… … … … 

On 

application 

for an order 

declaring a 

scheme to be 

an 

individually 

recognised 

overseas 

scheme 

On 

application 

for an order 

declaring a 

scheme to be 

recognised 


scheme is: 

- an EEA AIF 

equivalent to 

a Non-UCITS 

retail scheme 

- an EEA AIF 

equivalent to 

a Qualified 

Investor 

Scheme 

- a non-EEA 

AIF 

equivalent to 

a Non-UCITS 

retail scheme 

or a Qualified 

Investor 

Scheme 

An applicant 14,000 2 

76 

1,500 2 

2,400 2 

8,000 

Section 270 of On giving The operator 600 2 

2 

Appendix

the Act notice under 

section 270 of 


77 

Appendix 

Part 4 – (Alternative Investment Funds: application fees for recording on a public 

register) 

Regulation 58 

of the AIFM 

UK 

regulations 

Regulation 59 


UK 

regulations 

Regulation 60 


UK 

regulations 

On 

application for 

approval for 

marketing in 

the United 

Kingdom of 

an AIF 

managed by 

an EEA AIFM 

which does 

not have a 

branch in the 

United 

Kingdom 

where that 

AIF is (i) a 

non-EEA AIF 

or (ii) a feeder 

AIF, the 

master AIF of 

which is either 

managed by a 

non-EEA 

AIFM or is a 

non-EEA AIF 

On 


approval for 

marketing in 



an AIF 

managed by a 

non-EEA 

AIFM which 

is also a small 

AIFM 

On 


approval for 

marketing in 

the AIFM 300 per AIF 



N/A 

N/A 

N/A

… 



an AIF 

managed by a 

non-EEA 

AIFM which 

is not a small 

AIFM 

78 

Appendix 

Note: For an umbrella the fee is multiplied by the factor shown in the 

final column of the table 

FEES 4 Periodic fees 

… 

Modifications for persons becoming subject to periodic fees during the course of a 

financial year 

4.2.6 R (1) … 

(a) firms (other than AIFM qualifiers, ICVCs and UCITS 

qualifiers) in accordance with FEES 4.2.7R and FEES 

4.2.8R; 

… 

4.2.7 R A firm (other than an AIFM qualifier, ICVC or UCITS qualifier) which 

becomes authorised or registered, or whose permission and/or payment 

service activities are extended, during the course of the fee year must pay a 

fee which is calculated by: 

… 

4.2.11 

… 

R 1 Fee payer 2 Fee payable 3 Due date 4 Events 

occurring during 

the period 

leading to 

modified 

periodic fee 

Any firm (except 

an AIFM 

qualifier, ICVC, 

or a UCITS 

qualifier) 

… … …

Any manager of 

an authorised 

unit trust 

Any ACD of an 

ICVC 

Persons who, 

under the 

constitution or 

founding 

arrangements of 

a recognised 

scheme fund 

recognised under 

section 264 of 

the Act or section 

270 of the Act, is 

responsible for 

the management 

of the property 

held for or 

within the 

scheme 

(i) An EEA 

AIFM which 

does not have a 

branch in the 

United Kingdom 

and (ii) a non- 

EEA AIFM 

which is not a 

small AIFM 

A non-EEA 

AIFM which is 

not a small 

AIFM 

In relation to 

each unit trust 

the amount 

specified in part 

1 of FEES 4 

Annex 4 R 


each ICVC the 

amount specified 

in part 1 of FEES 

4 Annex 4R 


each recognised 

scheme the 



4 Annex 4R 


each AIF the 

AIFM manages 

of the kind 



Annex 4R the 



4 Annex 4R 


each AIF the 

AIFM manages 

of the kind 



Annex 4R the 


79 

… 

(1) Unless (2) 

applies, on or 

before 1 August, 

or, if later, 

within 30 days of 

the date of the 

invoice 

(2) If an event in 

column 4 occurs 

during the course 

of a financial 

year, 30 days 

after the 

occurrence of 

that event 

… 

… 

Appendix 

The relevant 

scheme becomes 

a recognised 

collective 

investment 

scheme 

recognised 

scheme 

An AIF is 

approved for 

marketing in the 


An AIF is 

approved for 


United Kingdom

… 

A small 

registered UK 

AIFM 


4 Annex 4R 

The basic fee 

contained in part 


Annex 4R 

… … … 

80 

Appendix 

The AIFM is 

registered by the 

FCA in 

accordance with 

regulation 12 of 


regulation. 

4.3 Periodic fee payable by firms (other than AIFM qualifiers, ICVCs and 

UCITS qualifiers) 

4.3.1 R The periodic fee payable by a firm (except an AIFM qualifier, ICVC or a 

UCITS qualifier) is: 

… 

4 Annex 

1R 

… 

Activity groups, tariff bases and valuation dates applicable 

Part 1 

This table shows how the FCA links the regulated activities for which a firm has 

permission to activity groups (fee-blocks). A firm can use the table to identify 

which fee-blocks it falls into based on its permission. 

Activity group Fee payer falls in the activity group if 

… … 

A.7 Fund 

managers 

Portfolio 

managers 

(1) its permission includes managing investments (a firm 

falling within this category is a class (1) firm); 

… 

OR 

(4) its permission includes managing an AIF or managing a 

UCITS 

Note: 

Class (1) firms are subdivided into three classes:

… 

… 

… … 

A.9 

Operators, 

Trustees and 

Depositaries of 

collective 

investment 

schemes and 

Operators of 

personal pension 

schemes or 

stakeholder 

pension schemes 

Managers and 

depositaries of 

investment 

funds, and 

operators of 

collective 

investment 

schemes or 


… 

(1) its permission: 

(a) includes one or more of the following: 

managing an AIFM; 

managing a UCITS; 

… 

acting as a depositary of an AIF; 

acting as a depositary of a UCITS; 

… 

Part 2 

This table indicates the tariff base for each fee-block set out in Part 1. 

Activity group Tariff base 

… 

A.7 FUNDS UNDER MANAGEMENT (FuM) 

… 

Notes on FuM 

81 

Appendix 

(a) Except for funds under management where the fund is an 

AIF, for For the purposes of calculating the value of funds 

under management, assets means all assets that consist of or 

include any investment which is a designated investment or 

those assets in respect of which the arrangements for their 

management are such that the assets may consist of or 

include such investments, and either the assets have at any

… 

A.9 GROSS INCOME 

82 

Appendix 

time since 29 April 1988 done so or the arrangements have at 

any time (whether before or after that date) been held out as 

arrangements under which the assets would do so. 

(aa) in relation to funds under management where the fund is 

an AIF, assets means all assets or property of any description 

of the fund. 

(1) For AIFMs (excluding internally managed AIFs), 

management companies, operators (including ACDs and 

managers of unit trusts but excluding operators of a personal 

pension scheme or a stakeholder pension scheme) and 

residual CIS operators, gross income from the activity 

relating to fee-block A.9 is defined as: 

the amount of the annual charge on funds invested 

investments in the fund regulated or unregulated collective 

investment scheme received or receivable in the latest 

accounting period (this is calculated as a % of funds invested, 

typically 1% p.a.); 

PLUS 

the front-end or exit charge levied on sales or redemptions of 

collective investment schemes (typically 4-5% of 

sales/redemptions) in that same accounting period; 

PLUS 

any additional initial or management charges levied through a 

product wrapper such as an ISA; 

BUT EXCLUDING box management profits. 

(2) For depositaries (including trustees of collective 

investment schemes and ICVC depositaries): 

The amount of the annual charge levied on funds in regulated 

collective investment schemes on investments in funds for 

which they act as depositary (typically a % of the total funds 

for which they act as depositary). 

(3) For operators of a personal pension scheme or a 

stakeholder pension scheme gross income from the activity 

relating to fee block A.9 is defined as: 

The amount of the charges levied on the personal pension 

scheme or stakeholder pension scheme for which they act as 

operator: 

including up-front charges, fund related charges, transaction 

related charges and periodic charges; but 

excluding charges made to an investor in respect of third

… 

4 Annex 

4R 

… 

… ICVC, 

83 

Appendix 

party suppliers; for example, charges for stock broking, 

borrowing, banking services and charges for arranging third 

party legal services, surveys or environmental screening in 

connection with property. 

Note: 

Only the gross income corresponding to United Kingdom 

business is relevant. 

(4) Internally managed AIFs must use a proxy for gross 

income relating to the activities relating to fee block A.9. 

This is the total value of funds under management (as defined 

in fee block A.7) multiplied by 0.01. 

Periodic fees in relation to collective investment schemes, registered AIFs and 

small registered UK AIFMs payable for the period 1 April 2013 to 31 March 

2014 

Part 1 – Periodic fees payable 

Scheme type Basic fee Total funds/ 

sub-funds 

aggregate 

AUT, 


the Act, 



schemes other 

than non-EEA 

AIFs 

recognised 

under section 


Fund factor Fee (£) 

580 … … … 

Section 272 of 2,360 [tbc] 1 – 2 1 2,360 [tbc]

… 


Non-EEA 

AIFs 

recognised 

under section 

272 of the 

Act, 

schemes 

formerly 

recognised 

under section 


as it was in 

force 

immediately 

before 22 July 

2013 

84 

Appendix 

3 – 6 2.5 5,900 [tbc] 

7 – 15 5 11,800 [tbc] 

16 – 50 11 25,960 [tbc] 

> 50 22 51,920 [tbc] 

Part 2– Periodic fees in respect of AIFs of an AIF kept on a register maintained by 

the FCA under the AIFMD UK regulations 

Kind of registered AIF Fee per AIF (£) 

Non-EEA AIF, or a feeder AIF, the master AIF of 

which is either managed by a non-EEA AIFM or is a 

non-EEA AIF where the AIF is managed by an EEA 

AIFM which does not have a branch in the United 

Kingdom and the AIF is registered under regulation 

58 of the AIFM UK regulations 

AIF managed by a non-EEA AIFM which is also a 

small AIFM and the AIF is registered under 

regulation 59 of the AIFM UK regulations 

AIF managed by a non-EEA AIFM which is not a 

small AIFM and the AIF is registered under 

regulation 60 of the AIFM UK regulations 

Part 3 – Periodic fees paid by small registered UK AIFMs 

The annual fee for small registered UK AIFMs is £1000 

5 Financial Ombudsman Service Funding 

… 

500 

350 

500

5 Annex 

1R 

… 

85 

Appendix 

Annual General Levy Payable in relation to the Compulsory Jurisdiction for 

2013/2014 

… 

Compulsory jurisdiction – general levy 

Industry block Tariff base General levy payable by firm 

… … … 

5. Fund 

Managers 

Portfolio 

managers 

(including those 

holding client 

money/ assets 

and not holding 

client money/ 

assets) 

6. – Operators, 

trustees and 

depositories of 

collective 

investment 

schemes and 


personal 

pensions 

schemes or 

stakeholder 


6. Managers and 

depositaries of 

investment 

funds, and 


collective 

investment 

schemes or 


… … 

… … 

… … … 

6 Financial Services Compensation Scheme Funding

… 

6 Annex 

3R 

… 

Financial Services Compensation Scheme – classes 

This table belongs to FEES 6.5.7R 

… 

86 


Class D1 Investment provision 

Firms with 

permission for: 

Any of the following: 

Managing investments; 

managing an AIF; 

managing a UCITS; 

… 

… … 

acting as the depositary of an AIF; 

acting as the depositary of a UCITS; 

Appendix

Annex F 

Amendments to the General Prudential sourcebook (GENPRU) 

In this Annex all of the text is new and is not underlined. 

After TP15 in the Transitional provisions insert the following: 

TP 16 AIFMD 

Application 

87 

Appendix 

16.1 R GENPRU TP 16 applies to a collective portfolio management investment 

firm. 

Duration of transitional 

16.2 R GENPRU TP 16 applies from 22 July 2013 until 21 July 2014 

Transitional provision 

16.3 R (1) Where a firm meets the conditions in paragraph (2), the changes 

effected by Annex [amending GENPRU] of the Alternative 

Investment Fund Managers Directive Instrument 2013 do not apply 

and therefore the provisions in GENPRU amended by that Annex 

will continue to apply as they were in force as at 21 July 2013. 

(2) The conditions referred to in (1) are: 

(a) the firm falls within regulation 68(1) of the AIFMD UK 

regulation; and 

(b) the firm does not have a Part 4A permission to manage an 

AIF.

Annex G 

Amendments to the Prudential sourcebook for UCITS firms (UPRU) 

In this Annex new text is underlined and struck through text is deleted unless otherwise 

indicated. 

Part I: Comes into force on 22 July 2013 

1.1 Introduction 

Application 

88 

Appendix 

1.1.1 R This Subject to 1.1.4G, this sourcebook and any provisions of the Interim 

Prudential sourcebook for investment businesses incorporated into this 

sourcebook by reference, apply to every UCITS firm. 

… 

1.1.4 

R 

This sourcebook does not apply to a UCITS firm to which IPRU(INV) 11 

(Collective Portfolio Management Firms and Internally Managed AIFs) 

applies. 

1.1.5 G TP5 to IPRU(INV) allows a UCITS firm that is authorised as such on or 

before 21 July 2013 to continue to comply, if it so wishes, with UPRU rather 

than IPRU (INV) 11 until 21 July 2014 or the date it becomes a UK AIFM (if 

earlier). 

1.1.6 G This sourcebook will be deleted in its entirety on 22 July 2014 and from this 

date a UCITS firm must comply with IPRU(INV) 11. 

Part II: Comes into force on 22 July 2014 

This sourcebook is deleted in its entirety.

Annex H 

Amendments to the Interim Prudential sourcebook for Investment Businesses 

(IPRU(INV)) 

In this Annex new text is underlined and struck through text is deleted unless otherwise 

indicated. 

Chapter 

… 

10 [deleted] 

The Interim Prudential Sourcebook for Investment Business 

Contents 

11 Collective Portfolio Management Firms and Internally Managed AIFs 

… 

Transitional provisions 

(1) (2) 

… 

Material to 


transitional 

provision 

applies 

5 IPRU(INV) 

11 

(3) (4) 

Transitional 

provision 

R A UCITS firm 

authorised on or 

before 21 July 

2013 need not 

comply with the 

provisions in 

IPRU(INV) 11 

until 22 July 2014 

or the date it 

becomes a UK 

AIFM (if earlier) 

and it continues to 

comply instead 

with the 

provisions in 

89 

(5) 

Transitional 

provision: dates in 

force 

22 July 2013 to 21 

July 2014 

(6) 

Appendix 

Handbook 

provision: coming 

into force 

22 July 2013

6 The 

changes to 

IPRU(INV) 

set out in 

Annex 

[amending 

IPRU(INV) 

] of the 



Fund 

Managers 

Directive 

Instrument 

2013 

… 

UPRU. 

R (1) Where a firm 

meets the 

conditions in (2) 

the changes 

effected by the 

Annex listed in 

column (2) do not 

apply and 

therefore the 

provisions in 

IPRU(INV) 

amended by that 

Annex will 

continue to apply 

as they were in 

force as at 21 July 

2013. 

(2) The conditions 

are: (a) the firm 

falls within 

regulation 68(1) of 


regulation; and (b) 

the firm does not 

have a Part 4A 

permission to 


Chapter 1: Application and General Provisions 

… 

90 

From 22 July 2013 

until 21 July 2014 

22 July 2013 

Appendix 

1.2.1 R The Glossary applies to the transitional provisions, this chapter (IPRU(INV) 

1), IPRU(INV) 2, IPRU(INV) 4, IPRU(INV) 6, IPRU(INV) 11 and 

IPRU(INV) 13. 

1.2.2 R (1) IPRU(INV) applies to: 

… 

(i) a credit union which is a CFT provider; and 

(j) an exempt CAD firm; 

(k) a collective portfolio management firm; and 

(l) an internally managed AIF.

… 

1.2.3 G For the avoidance of doubt, IPRU(INV) does not apply to any of the 

following: 

… 

1.2.5 R Table 

… 

… 

(g) A UCITS qualifier; or. 

(h) A UCITS management company. 

This table belongs to IPRU(INV) 1.2.4R 

… 

Service company Chapters 1 and 6 

Collective portfolio management firm Chapters 1 and 11 

Internally managed AIF Chapters 1 and 11 

Personal investment firm Chapters 1 and 13 

… 

Chapter 2: Authorised professional firms 

… 

2.1.2 R … 

… 

91 

Appendix 

(2) The type of authorised professional firm to which (1) applies is one: 

… 

(d) which acts as the trustee or operator of a regulated collective 

investment scheme; [deleted] 

(da) which acts as an AIFM or a residual CIS operator; 

(db) which acts as a depositary; 

…

2.1.4 R This table belongs to IPRU(INV) 2.1.1R 

… 

TYPE OF BUSINESS ACTIVITY CHAPTER OF 

SOURCEBOOK 

… … 

(iv) acting as the ACD or depositary of an 

ICVC; or [deleted] 

(iva) acting as a depositary of a UCITS; or 

(ivb) managing an AIF; or 

(ivc) acting as a depositary of an AIF; or 

(v) establishing, operating or winding-up 

other collective investment schemes acting 

as a residual CIS operator; or 

… 

92 

Appendix 

2.1.7 G The activities that a full scope UK AIFM and a UCITS management 

company are allowed to perform are restricted by article 6 of AIFMD and 

article 6 of the UCITS Directive, to the management of AIFs and/or UCITS 

and the additional investment activities permitted by article 6(4) of AIFMD 

and article 6(3) of the UCITS Directive (as applicable). These restrictions 

are also applied to a small authorised UK AIFM of an authorised AIF by 

FUND 1.4.3R (External AIFMs). As such, an authorised professional firm 

cannot be an internally managed AIF, a collective portfolio management 

firm or a collective portfolio management investment firm. 

… 

Chapter 3: Financial resources for Securities and Futures Firms which are not MiFID 

Investment Firms or which are Exempt BIPRU Commodities Firms 

… 

APPENDIX 1 – GLOSSARY OF TERMS FOR IPRU(INV) 3 

… 

investment business means any of the following regulated activities specified in Part II of 

the Regulated Activities Order and which is carried on by way of 

business: 

… 

(i) establishing, operating or winding up a collective investment

… 

scheme management 

activity 

… 

scheme (article 51(1)(a)); [deleted] 

(ia) managing a UCITS (article 51ZA); 

(ib) acting as a depositary of a UCITS (article 51ZB); 

(ic) managing an AIF (article 51ZC); 

(id) acting as a depositary of an AIF (article 51ZD); 

(ie) acting as a residual CIS operator (article 51ZE); 

93 

Appendix 

(j) acting as a trustee of an authorised unit trust scheme (article 

51(1)(b)); [deleted] 

(k) acting as the depositary or sole director of an open-ended 

investment company (article 51(1)(c)); [deleted] 

… 

Chapter 5: Financial Resources 

... 

5.2.3(2) R ... 

means the management by an operator of a collective investment 

scheme of the property held for or within a collective investment 

scheme of which it is the operator and includes the management of 

the property of an open-ended investment company by the company 

itself as its operator but excludes the management of an open-ended 

investment company by another person as its operator (and excludes 

in all cases activities relating to transactions in units, shares or 

interests in the collective investment scheme); 

Exceptions from the liquid capital requirement 

(i) is an exempt CAD firm which is also an operator of a collective 

investment scheme a residual CIS operator or a small authorised UK 

AIFM of an unauthorised AIF and that scheme or AIF only invests in 

venture capital investments for non-retail clients; or 

(ii) ... 

(d) the firm's permitted business limits it to acting as the 

operator of a collective investment scheme a residual CIS 

operator or a small authorised UK AIFM whose where the 

main purpose of the collective investment scheme or

... 

94 

Appendix 

unauthorised AIF (as applicable) is to invest in permitted 

immovables whether in the UK or abroad. 

Table 5.2.3(5)(a) EXPENDITURE BASED REQUIREMENT 

… 

1: The fraction is 6/52 where: 

PART II 

FRACTIONS 

(a) the firm is an authorised unit trust manager; or [deleted] 

(b) the firm acts only as an authorised corporate directors of an ICVC; or 

[deleted] 

(c) the firm is an investment manager (including the operator of an unregulated 

collective investment scheme the a residual CIS operator or a small 

authorised UK AIFM of an unauthorised AIF in relation to which the firm 

carries on the activity of an investment manager), unless paragraph 2 

applies. 

2: The fraction is 13/52 where the firm is an investment manager as in paragraph 1(c) above, 

or is a custodian and the firm either: 

(a) itself holds customers’ monies or assets; or 

(b) procures the appointment as custodian of its customers’ monies or assets of 

an associate of the firm which is not an approved bank. 

Note: Paragraph 1(a) above includes a firm which acts as both an authorised unit trust 

manager and as an authorised corporate director of an ICVC. 

… 

Table 5.2.3(5)(b) POSITION RISK REQUIREMENT 

… 

F Determination of disallowed value of units [deleted] 

The disallowed value of units held in a UCITS management 

company's box is the difference between: 

(a) 

the amount at which stocks of units in the box are valued in 

the balance sheet; and 

(b) the adjusted value of the units, being the value of the units

… 

Note 

95 

Appendix 

calculated at cancellation prices less the value calculated at 

cancellation prices of the units multiplied by the following 

percentages based on the types of investments in the 

individual UCITS schemes: 

Quoted, fixed or floating rate interest bearing securities: 3% 

Equities: 

USA, Japan, Canada 5% 

Europe 6% 

Far East and other 10% 

This can be illustrated as follows: 100 units, comprising Far East 

equities, with unit cancellation price of 100 pence. 

Note 

£ £ 

Balance sheet value 104 

Value of cancellation price 100 

Less £100 x 10% 10 90 

_____ _____ 

Disallowed 14 

The percentages in the requirement column are applied to the market 

value (unless otherwise stated) of gross positions i.e. both longs and 

shorts in each category; netting and offsetting are prohibited. The 

long or short position in a particular instrument is the net of any long 

or short positions held in that same instrument. 

Table 5.2.3(5)(e) OTHER ASSETS REQUIREMENT 

… 

PART II 

RISK FACTORS 

Assets and Off-Balance Sheet Items Risk Factor 

Assets 

Cash at bank and in hand and equivalent items NIL

Assets secured by acceptable collateral including deposits 

and certificates of deposit with lending institutions 

96 

NIL 

Amount due from trustees of authorised unit trusts NIL 

Note 

This only applies to firms who are authorised unit trust 

managers in relation to authorised unit trusts they manage. 

Amount due from depositaries of ICVCs NIL 

Note 

This only applies to firms who are authorised corporate 

directors in relation to ICVCs they operate 

… 

… 

Appendix 1 (Interpretation) 

Glossary of Terms for Chapter 5 (Former IMRO Firms) 

… 

funds under 

management 

… 

specified trustee 

business 

Appendix 

(1) collective investment schemes other than OEICs managed by 

the firm including schemes where it has delegated the 

management function but excluding schemes that it is 

managing as delegate; and 

(2) OEICs for which the firm is the designated management 

company. 

1. means any investment business carried on in the UK by a 

trustee firm, but excluding each of the following activities: 

… 

(b) Managing investments 

… 

… 

(v) where the trust is a unit trust scheme and all day-today 

investment decisions in the carrying on of that 

activity are or are to be taken by the operator or 

manager of the scheme.

… 

97 

Appendix 

(d) Establishing, operating or winding up a collective 

investment scheme including or acting as trustee of an 

authorised unit trust scheme but only to the extent that 

such activities do not otherwise constitute specified 

trustee business. 

… 

Chapter 14: Consolidated Supervision for Investment Businesses 

… 

14.1.4 R A firm need not meet the requirements in rules 14.3.1 and 14.3.2 if: 

… 

(2) no firm in the group deals in investments as principal, except where 

it is an operator of a collective investment scheme dealing solely as a 

result of its activity of operating a collective investment scheme, or 

where the firm's positions fulfil the CAD article 3 exempting criteria; 

Annex A: LIMITED LIABILITY PARTNERSHIPS: ELIGIBLE MEMBERS’ CAPITAL 

1 Introduction 

Application 

1.1 R This annex applies to any firm: 

… 

(1) that is a limited liability partnership; and 

(2) that is a kind of firm to whom the provisions of this sourcebook 

apply, or which is a UCITS firm. 

1.5 G The following rules allow inclusion of members’ capital within a firm’s 

capital if it meets the conditions in this annex: 

Chapter IPRU(INV) rule How eligible LLP members’ capital should be treated for the 

purposes of the IPRU(INV) rule 

… 

10 Table 10-61(1)A 

Table 10-61(1)B 

Eligible LLP members’ capital may be counted as initial 

capital within the relevant table.

Table 10-62(2)A 

Table 10-62(2)B 

Table 10-62(2)C 

98 

Appendix 

11 Table 11.4 Eligible LLP members’ capital may be counted as Item (5) 

Tier 1 capital within Category A of Table 11.4. 

…

Annex I 

Amendments to the Conduct of Business sourcebook (COBS) 


1 Annex 1 Application (see COBS 1.1.2R) 

Part 1: What? 

Modifications to the general application rule according to activities 

... 

99 

Appendix 

7 Modified meaning of designated investment business for UK AIFMs and UCITS 

management companies 

7.1 R For the purposes of this sourcebook designated investment business includes 

any activities which would be included but for the exclusion in article 72G 

(Managers of UCITS and AIFs) of the Regulated Activities Order. 

… 

Part 3: Guidance 

… 

10. AIFMD: effect on territorial scope 

10.1 G PERG [xx] contains general guidance on the businesses to which AIFMD 

applies. FUND 1 contains guidance on the types of AIFM. 

10.2 G The only rules in this sourcebook which implement AIFMD are COBS 

2.1.1R(4) and COBS 2.1.4R. COBS 2.1.1R(4) applies to a full scope UK AIFM 

managing or marketing an AIF from an establishment in the United Kingdom 

and an incoming EEA AIFM branch. COBS 2.1.4R applies to an incoming EEA 

AIFM branch or a full scope UK AIFM operating from an establishment in the 

United Kingdom or a branch in another EEA State. 

10.3 G The other rules in this sourcebook which apply to a full scope UK AIFM or 

incoming EEA AIFM (including an AIFM qualifier) fall outside the scope of 

AIFMD and are therefore not affected by its territorial scope. 

… 

4.12 Unregulated collective investment schemes 

4.12.1 R … 

(4)

… 

Category 3 person 

100 

Appendix 

Promotion to: Promotion of an unregulated collective 

investment scheme which is: 

A person who is eligible to 

participate in a scheme constituted 

under: 

(1) the Church Funds Investment 

measure 1958; 

(2) section 96 of the Charities Act 

2011; or 


(Northern Ireland) 1964,; or 


2011. 

… 

Any such collective investment scheme 

18.5 Operators of collective investment schemes, Residual CIS operators, UCITS 

management companies and AIFMs 

Application 

18.5.1 R Subject to COBS 18.5.1AR, this section applies to a firm which is an operator 

of a collective investment scheme: 

(1) a UCITS management company of a UCITS scheme; 

(2) a full scope UK AIFM; 

(3) a small authorised UK AIFM; 

(4) a residual CIS operator; and 

(5) an incoming EEA AIFM branch. 

18.5.1A R COBS 18.5.5R to COBS 18.5.18E do not apply to a small authorised UK AIFM 

of an unauthorised AIF which is not a collective investment scheme. 

Application or modification of general COBS rules for operators 

18.5.2 R An operator A firm when it is carrying on scheme management activity, or for

18.5.2- 

A 

an AIFM, AIFM investment management functions: 

101 

Appendix 

(1) must comply with the COBS rules specified in the table, as modified by 

this section; and 

(2) need not comply with any other rule in COBS. 

G For activities carried on by firms which do not amount to scheme management 

activity, or for an AIFM, AIFM investment management functions, the COBS 

rules apply in accordance with the general application rule as modified in 

COBS 1 Annex 1. 

Table: Application of conduct of business rules 

This table belongs to COBS 18.5.2R 

Application of conduct of business rules 

Chapter, 

section or 

rule 

1 Application 

Description Modifications 

2.1.1 Acting honestly, fairly 

and professionally 

2.3 Inducements 

2.4 Agent as client and 

reliance on others 

4.2.1 - 

4.2.3 

Fair, clear and not 

misleading 

communications 

5.1 Distance 


5.2 E-Commerce 

6.1G.2 Re-registration 

requests: firms acting 

as registrars 

11.2 Best execution In the case of an unregulated 

collective investment scheme, COBS 

18.5.4R (Modification of best 

execution) applies instead of COBS 

11.2 in the circumstances set out in

Chapter, 

section, 

rule 

11.3 Client order handling 

11.5 Record keeping: client 

orders and decisions to 

deal 

11.6 Use of dealing 

commission 

11.8 Recording telephone 

conversations and 

electronic 


18.5 Operators of collective 

investment schemes 

Full scope 

UK AIFM 

Small 

authorised 

UK AIFM 

of an 

authorised 

AIF 

Small 

authorised 

UK AIFM of 

an 

unauthorised 

AIF and a 

residual CIS 

operator 

102 

COBS 18.5.4R. 

Incoming 

EEA AIFM 

branch 

UCITS 

management 

company 

1 Applies Applies Applies Applies Applies 

2.1.1 Applies Applies Applies Applies Applies 

2.1.4 Applies Applies Does not 

apply 

2.3 Does not 

apply 

2.4 Does not 

apply 

4.2.1 – 

4.2.3 

Does not 

apply 

Applies Does not 

apply 

Applies Applies Does not 

apply 


apply 

Applies 

Applies 

Applies Applies Applies Applies Applies 

5.1 Applies Applies Applies Applies Applies 


Appendix

6.1G.2 Applies Applies Applies Applies Applies 

11.2 Applies as 

modified by 

COBS 

18.5.4AR 

11.3 Does not 

apply 

11.5 Does not 

apply 

Applies as 

modified 

COBS 

18.5.4AR 

Does not 

apply 

Does not 

apply 

Applies as 

modified by 

COBS 

18.5.4R 

103 

Applies as 

modified 

by COBS 

18.5.4AR 


apply 

Applies as 

rules 

Does not 

apply 

Applies 

Applies 

Does not 

apply 



16.3 Does not 

apply 

Does not 

apply 

Applies to a 

small 

authorised 

UK AIFM of 

an 

unauthorised 

AIF which is 

not a 

collective 

investment 

scheme as 

modified by 

COBS 

18.5.5BR. 

Otherwise 

does not 

apply. 

Does not 

apply 

Does not 

apply 


… 

General modifications 

18.5.3 R The Where the COBS rules specified in the table in COBS 18.5.2R 

apply to an operator a firm when it is carrying on scheme management 

activity, or for an AIFM, AIFM investment management functions the 

following modifications apply: 

(1) subject to (2), references to customer or client are to be 

construed as references to any scheme fund in respect of which 

the operator firm is acting or intends to act, and with or for the 

benefit of which the relevant activity is to be carried on; 

Appendix

(1A) references to client in the client’s best interests rule must also 

be construed as referring to the investors in the fund. 

(2) in the case of an unregulated collective investment scheme a 

small authorised UK AIFM of an unauthorised AIF or a 

residual CIS operator, when an operator a firm is required by 

the rules in COBS to provide information to, or obtain consent 

from, a customer or client, the operator firm must ensure that 

the information is provided to, or consent obtained from, a 

participant an investor or a potential participant investor in 

the scheme fund as the case may be; and 

(3) references to the service of portfolio management in COBS 

11.2 (Best execution) and 11.3 (Client order handling) are to 

be construed as references to the management by an operator a 

firm of financial instruments held for or within the scheme 

fund of which it is the operator. 

Modification of best execution operators of unregulated collective 

investment schemes 

18.5.4 R The best execution provisions applying to an operator of a collective 

investment scheme a small authorised UK AIFM of an unauthorised 

AIF or a residual CIS operator do not apply in relation to an 

unregulated collective investment scheme a fund whose scheme fund 

documents include a statement that best execution does not apply in 

relation to the scheme fund and in which: 

(1) no participant investor is a retail client; or 

(2) no current participant investor in the scheme fund was a retail 

client on joining the scheme when it invested in the fund as a 

participant. 

18.5.4A R The following provisions in COBS 11.2 apply to a full scope UK 

AIFM and a small authorised UK AIFM of an authorised fund: 

(1) COBS 11.2.5G; 

(2) COBS 11.2.17G; 

(3) COBS 11.2.23AR, but references to management company 

should be read as references to an AIFM and references to 

unitholders read as references to investors. This obligation also 

only applies in respect of the execution policy required under 

article 27(3) of the AIFMD level 2 regulation (Execution of 

decisions to deal on behalf of the managed AIF) (as applied by 

FUND App 1 1.4.1R(1) for a small authorised UK AIFM of an 

authorised AIF); 

(4) COBS 11.2.24R; 

104 

Appendix

(5) COBS 11.2.25R(1) and COBS 11.2.26R, but only where an AIF 

itself has a governing body which can provide prior consent; 

and 

(6) COBS 11.2.27R, but only in respect of the obligation on an 

AIFM to notify the AIF of any material changes to their order 

execution arrangements or execution policy. 

Modification of periodic reporting requirements 

18.5.5B R A small authorised UK AIFM of an unauthorised AIF which is not a 

collective investment scheme must comply with COBS 16.3 (Periodic 

reporting) with references to managing investments to be construed as 

providing AIFM investment management functions. 

Scheme documents for an unregulated collective investment scheme 

unauthorised fund 

18.5.5 R An operator of an unregulated collective investment scheme A small 

authorised UK AIFM of an unauthorised AIF or a residual CIS 

operator must not accept a retail client as a participant an investor in 

the scheme fund unless it has taken reasonable steps to offer and, if 

requested, provide to the potential participant investor scheme fund 

documents which adequately describe how the operation of the 

scheme fund is governed. 

Format and content of scheme fund documents 

18.5.6 G An operator's scheme The fund documents required under COBS 

18.5.5R may consist of any number of documents provided that it is 

clear that collectively they constitute the scheme fund documents and 

provided the use of several documents in no way diminishes the 

significance of any of the statements which are required to be given to 

the potential participant investor. 

18.5.7 G The scheme fund documents of an unregulated collective investment 

scheme unauthorised fund managed by a small authorised UK AIFM 

or a residual CIS operator (if they those fund documents exist) should 

make it clear that if a participant an investor is reclassified as a retail 

client, this reclassification will not affect certain scheme management 

activities activities of the firm operator of the scheme. In particular, 

despite such a reclassification, the operator firm will not be required to 

comply with the best execution provisions applying to an operator of 

a collective investment scheme. It should be noted that there is no 

requirement that scheme fund documents must be produced for by an 

unregulated collective investment scheme a small authorised UK 

AIFM of an unauthorised fund or a residual CIS operator. 

18.5.8 R Where the scheme fund is an unregulated collective investment scheme 

unauthorised fund managed by a small authorised UK AIFM or a 

residual CIS operator and no current participant investor in the 

105 

Appendix

scheme fund was a retail client on joining the scheme as a participant 

when it invested in the fund, the scheme fund documents must include 

a statement that: 

(1) explains that if a participant an investor is reclassified as a 

retail client subsequent to joining the scheme as a participant 

investing in the fund, then the operator firm may continue to 

treat all participants investors in the scheme fund as though they 

were not retail clients; 

(2) explains that if a participant an investor is reclassified as a 

retail client subsequent to joining the scheme as a participant 

investing in the fund, then the modification of best execution 

(see COBS 18.5.54R) will continue to apply to that scheme 

fund; and 

(3) explains that, in the event of such a reclassification, the 

operator firm will not be required to provide best execution in 

relation to the scheme fund. 

18.5.9 G The operator A small authorised UK AIFM of an unauthorised AIF 

or a residual CIS operator will still have to comply with other COBS 

provisions as a result of the reclassification of a participant an 

investor as a retail client, for example, the requirement to provide 

periodic statements to participants investors who are retail clients in 

an unregulated collective investment scheme unauthorised fund (see 

the rule on periodic statements for an unregulated collective 

investment scheme unauthorised fund (COBS 18.5.11R)). 

Adequate information 

18.5.10 E (1) In order to provide adequate information to describe how the 

operation of the scheme fund is governed, an operator of an 

unregulated collective investment scheme a small authorised 

UK AIFM of an unauthorised AIF or a residual CIS operator 

should include in the scheme fund documents a provision about 

each of the items of relevant information set out in the 

following table (Content of scheme fund documents). 

… 

Table: Content of scheme fund documents 

Content of scheme fund documents 

The scheme fund documents should include provision about: 

(1) Regulator 

The firm statutory status in accordance with GEN 4 Annex 

1R (Statutory status disclosure); 

106 

Appendix

(2) Services 

the nature of the services that the operator firm will provide 

in relation to the scheme; 

(3) Payments for services 

details of any payment for services payable by the scheme 

fund or from the property of the scheme fund or participants 

investors in the scheme fund to the operator firm, including 

where appropriate: 

(a) the basis of calculation; 

(b) how it is to be paid and collected; 

(c) how frequently it is to be paid; and 

(d) whether or not any other payment is receivable by the 

operator firm (or to its knowledge by any of its 

associates) in connection with any transactions 

effected by the operator firm with or for the scheme 

fund, in addition to or in lieu of any fees; 

(4) Commencement 

when and how the operator firm is appointed; 

(5) Accounting 

the arrangements for accounting to the scheme fund or 

participants investors in the scheme fund for any transaction 

effected; 

(6) Termination method 

how the appointment of the operator firm may be 

terminated; 

(7) Complaints procedure 

how to complain to the operator firm and a statement that 

the participants investors in the scheme fund may 

subsequently complain direct to the Financial Ombudsman 

Service; 

(8) Compensation 

whether or not compensation may be available from the 

compensation scheme should the operator firm be unable to 

meet its liabilities, and information about any other 

applicable compensation scheme; and, for each applicable 

compensation scheme, the extent and level of cover and how 

further information can be obtained; 

(9) Investment objectives 

107 

Appendix

the investment objectives for the portfolio of the scheme 

fund; 

(10) Restrictions 

(a) any restrictions on: 

(i) the types of investments or property which may 

be included in the portfolio of the scheme fund; 

(ii) the markets on which investments or property 

may be acquired for the portfolio of the scheme 

fund; 

(iii) the amount or value of any one investment or 

asset, or on the proportion of the portfolio of 

the scheme fund which any one investment or 

asset or any particular kind of investment or 

asset may constitute; or 

(b) that there are no such restrictions; 

(11) Holding scheme fund assets 

(a) if it is the case, that the operator firm will: 

(i) hold money on behalf of the scheme fund or be 

the custodian of investments or other property 

of the scheme fund; or 

(ii) arrange for some other person to act in either 

capacity and, if so, whether that person is an 

associate of the operator firm identifying that 

person and describing the nature of any 

association; and 

(b) in either case: 

(i) … 

(ii) the arrangements for recording and separately 

identifying registrable investments of the 

scheme fund and, where the registered holder is 

the operator's firm’s own nominee, that the 

operator firm will be responsible for the acts 

and omissions of that person; 

(iii) the extent to which the operator firm accepts 

liability for any loss of the investment of the 

108 

Appendix

scheme fund; 

(iv) the extent to which the operator firm or any 

other person mentioned in (11)(a)(ii), may hold 

a lien or security interest over investments of 

the scheme fund; 

(v) where investments of the scheme fund will be 

registered collectively in the same name, a 

statement that the entitlements of the scheme 

fund may not be identifiable by separate 

certificates or other physical documents of 

title, and that, should the operator firm default, 

any shortfall in investments of the scheme fund 

registered in that name may be shared 

proportionately among all schemes funds and 

any other customers of the operator firm 

whose investments are so registered; 

(vi) whether or not investments or other property of 

the scheme fund can be lent to, or deposited by 

way of collateral with, a third party and 

whether or not money can be borrowed on 

behalf of the scheme fund against the security 

of those investments or property and, if so, the 

terms upon which they may be lent or 

deposited; 

(vii) the arrangements for accounting to the scheme 

fund for investments of the scheme fund, for 

income received (including any interest on 

money and any income earned by lending 

investments or other property) of the scheme 

fund, and for rights conferred in respect of 

investments or other property of the scheme 

fund; 

(viii) the arrangements for determining the exercise 

of any voting rights conferred by investments 

of the scheme fund; and 

(ix) where investments of the scheme fund may be 

held by an eligible custodian outside the 

United Kingdom, a general statement that 

different settlement, legal and regulatory 

requirements, and different practices relating to 

the segregation of those investments, may 

apply; 

109 

Appendix

(12) Clients' money outside the United Kingdom 

if it is the case, that the operator firm may hold the money of 

the scheme fund in a client bank account outside the United 

Kingdom; 

(13) Exchange rates 

if a liability of the scheme fund in one currency is to be 

matched by an asset in a different currency, or if the services 

to be provided to the operator firm for the scheme fund may 

relate to an investment denominated in a currency other than 

the currency in which the investments of the scheme fund are 

valued, a warning that a movement of exchange rates may 

have a separate effect, unfavourable or favourable, on the 

gain or loss otherwise made on the investments of the 

scheme fund; 

(14) Stabilised investments 

if it is the case, that the operator firm is to have the right 

under the scheme fund documents to effect transactions in 

investments the prices of which may be the subject of 

stabilisation; 

(15) Conflict of interest and material interest 

if it is the case, that the operator firm is to have the right 

under the agreement or instrument constituting the scheme 

instrument constituting the fund to effect transactions on 

behalf of the scheme fund in which the operator firm has 

directly or indirectly a material interest (except for an 

interest arising solely from the participation investment of 

the operator firm as agent for the scheme fund), or a 

relationship of any description with another party which 

may involve a conflict with the operator's firm duty to the 

scheme fund, together with a disclosure of the nature of the 

interest or relationship; 

(16) Use of dealing commission 

if the operator firm receives goods or services in addition to 

the execution of its customer orders in accordance with the 

section on the use of dealing commission, the prior 

disclosure required by the rule on prior disclosure (see 

COBS 11.6.2R); 

(17) Acting as principal 

if it is the case, that the operator firm may act as principal in 

a transaction with the scheme fund; 

(18) Stock lending 

if it is the case, that the operator firm may undertake stock 

lending activity with or for the scheme fund specifying the 

110 

Appendix

type of assets of the scheme fund to be lent, the type and 

value of relevant collateral from the borrower and the 

method and amount of payment due to the scheme fund in 

respect of the lending; 

(19) Transactions involving contingent liability investments 

(a) if it is the case, that the agreement or instrument 

constituting the scheme instrument constituting the 

fund allows the operator firm to effect transactions 

involving contingent liability investments for the 

account of the portfolio of the scheme fund; 

(b) … 

(c) if applicable, that the operator firm has the authority to 

effect transactions involving contingent liability 

investments otherwise than under the rules of a 

recognised investment exchange or designated 

investment exchange and in a contract traded thereon; 

… 

(21) Valuation 

the bases on which assets comprised in the portfolio of the 

scheme fund are to be valued; 

(22) Borrowings 

if it is the case, that the operator firm may supplement the 

funds in the portfolio of the scheme fund and, if it may do 

so: 

(a) the circumstances in which the operator firm may do 

so; 

(b) whether there are any limits on the extent to which the 

operator firm may do so and, if so, what those limits 

are; and 

… 

(23) Underwriting commitments 

if it is the case, that the operator firm may for the account of 

the portfolio of the scheme fund underwrite or subunderwrite 

any issue or offer for sale of securities, and: 

… 

(24) Investments in other collective investment schemes funds 

111 

Appendix

whether or not the portfolio may contain units in a collective 

investment scheme invest in funds either operated managed 

or advised by the operator firm or by an associate of the 

operator firm or in a collective investment scheme fund 

which is not a regulated collective investment scheme; 

(25) Investments in securities underwritten by the operator firm 

whether or not the portfolio may contain securities of which 

any issue or offer for sale was underwritten, managed or 

arranged by the operator firm or by an associate of the 

operator firm during the preceding 12 months. 

Application of COBS 18.5.10E to a full scope UK AIFM 

18.5.10A R A full scope UK AIFM which markets an unauthorised AIF to a retail 

client must, in addition to providing the information in FUND 3.2, 

take reasonable steps to offer and, if requested, provide to that 

potential investor information about the following items in the COBS 

18.5.10E table (content of fund documents): 

(1) (1) (Regulator); 

(2) (4) (Commencement); 

(3) (5) (Accounting); 

(4) (6) (Termination method); 

(5) (7) (Complaints procedure); 

(6) (8) (Compensation); 

(7) (13) (Exchange rates); 

(8) (14) (Stabilised investments); 

(9) (16) (Use of dealing commission); 

(10) (17) (Acting as principal); 

(11) (23) (Underwriting commitments); 

(12) (24) (Investments in other funds); and 

(13) (25) (Investments in securities underwritten by the firm). 

Periodic statements for an unregulated collective investments scheme 

unauthorised fund 


authorised UK AIFM of an unauthorised AIF or a residual CIS 

operator must, subject to the exceptions from the requirement to 

112 

Appendix

provide a periodic statement, provide to participants investors in the 

scheme fund, promptly and at suitable intervals, a statement in a 

durable medium which contains adequate information on the value 

and composition of the portfolio of the scheme fund at the beginning 

and end of the period of the statement. 

Promptness, suitable intervals and adequate information 

18.5.12 E (1) An operator A small authorised UK AIFM of an unauthorised 

AIF or a residual CIS operator should act in accordance with 

the provisions in the right hand column of the periodic 

statements table (see COBS 18.5.15E) to fulfil the requirement 

to prepare and issue periodic statements indicated in the left 

hand column against these provisions. 

(2) Compliance with (1) may be relied on as tending to establish 

compliance with the requirement to prepare and issue periodic 

statements periodic statements. 

(3) Contravention of (1) may be relied on as tending to establish 

contravention of the requirement to prepare and issue periodic 

statements periodic statements. 

Exceptions from the requirement to provide a periodic statement 

18.5.13 R (1) An operator of an unregulated collective investment scheme A 

small authorised UK AIFM of an unauthorised fund or a 

residual CIS operator need not provide a periodic statement: 

(a) (i) to a participant an investor in the scheme fund who is 

a retail client ordinarily resident outside the United 

Kingdom; or 

(ii) to a participant an investor in the scheme fund who is 

a professional client; if the participant investor has 

so requested or the operator firm has taken 

reasonable steps to establish that the participant 

investor does not wish to receive it; or 

… 

(b) … 

(2) For a firm acting as an outgoing ECA provider, the exemption 

for retail client participants investors ordinarily resident outside 

the United Kingdom applies only to a participant an investor in 

the scheme fund who is a retail client ordinarily resident outside 

the EEA. 

Record keeping requirements 

113 

Appendix


authorised UK AIFM of an unauthorised AIF or residual CIS 

operator must make a copy of any periodic statement it has provided 

in accordance with the requirement to prepare and issue periodic 

statements to participants investors in the scheme fund. The record 

must be retained for a minimum period of three years. 

18.5.15 E Table: Periodic statements 

This table belongs to COBS 18.5.12E. 

Periodic statements 

Suitable 

intervals 

Adequate 

information 

… 

(1) A periodic statement should be provided at 

least: 

(a) … 

(b) once in any other period, not exceeding 

12 months, which has been mutually 

agreed between the operator firm and the 

participant investor in the scheme fund. 

(2) (a) A periodic statement should contain: 

(i) (A) … 

114 

(B) where the portfolio of the 

scheme fund includes 

uncovered open positions in 

contingent liability 

investments, the additional 

information in the table 

listing the contents of a 

periodic statement (see 

COBS 18.5.15 18.5.18E) in 

respect of contingent liability 

investments; or 

(ii) such information as a participant 

an investor who is a retail client 

ordinarily resident outside the 

United Kingdom, or a professional 

client, has on his own initiative 

agreed with the operator firm as 

adequate. 

Appendix

… 

18.5.17 E Table: General contents of a periodic statement 


General contents of periodic statements 

1 Contents and value 

(a) As at the beginning of the account period, the total value 

of the portfolio of the scheme fund, being either: 

(i) … 

(ii) in the case of the first periodic statement, the 

value of the assets comprised in the portfolio on 

the date on which the operator firm assumed 

responsibility for the management of the portfolio. 

(b) As at the end of the account period: 

(i) the number, description and value of each 

investment held on behalf of the scheme fund; 

(ii) the amount of cash held on behalf of the scheme 

fund; and 

(iii) the total value of the portfolio of the scheme fund. 

2 Basis of valuation 

A statement of the basis on which the value of each investment 

has been calculated and, if applicable, a statement that the basis 

for valuing a particular investment has changed since the 

previous periodic statement. Where any investments are shown 

in a currency other than the usual one used for valuation of the 

portfolio of the scheme fund, the relevant currency exchange 

rates must be shown. 

3 Details of any assets loaned or charged 

(a) A summary of those investments (if any) which were, at 

the closing date, loaned to any third party and those 

investments (if any) that were at that date charged to 

secure borrowings made on behalf of the portfolio of the 

scheme fund; and 

… 

4 Transactions and changes in composition 

115 

Appendix

Except in the case of a portfolio which aims to track the 

performance of an external index: 

(a) a statement that summarises the transactions entered into 

for the portfolio of the scheme fund during the period; 

and 

(b) the aggregate of money and a summary of all investments 

transferred into and out of the portfolio of the scheme 

fund during the period; and 

(c) the aggregate of any interest payments, dividends and 

other benefits received by the operator firm for the 

portfolio of the scheme fund during that period. 

5 Charges and remuneration 

If not previously advised in writing, a statement for the account 

period: 

(a) of the aggregate charges of the operator firm and its 

associates; and 

(b) of any remuneration received by the operator firm or its 

associates or both from a third party in respect of the 

transactions entered into, or any other services provided, 

for the portfolio of the scheme fund. 

6 Movement in value of portfolio 

A statement of the difference between the value of the portfolio 

at the closing date and its value at the starting date of the 

account period, having regard at least, during the account 

period, to the following: 

(a) the aggregate of assets received from participants 

investors of the scheme fund and added to the portfolio of 

the scheme fund; 

(b) the aggregate of the value of assets transferred, or of 

amounts paid, to the scheme fund; 

(c) the aggregate income received on behalf of the scheme 

fund in respect of the portfolio; and 

(d) the aggregate of realised and unrealised profits or gains 

and losses attributable to the assets comprised in the 

portfolio of the scheme fund. 

Notes: 

For the purposes of Item 1, where the scheme fund is a property 

116 

Appendix

enterprise trust, it will be sufficient for the periodic statement to 

disclose the number of properties held in successive valuation 

bands where this is appropriate to the size and composition of the 

scheme, rather than the value of each asset in the portfolio. The 

valuation bands of over £10m, £5-£10m, £2.5-£5m, £1-£2.5m and 

under £1m would be appropriate, unless an operator a firm could 

show that different bands were justifiable in the circumstances. 

The statement to be provided under Item 6 is not intended to be an 

indicator of the performance of the portfolio of the scheme. 

An operator A firm may wish to distinguish capital and income, 

and thereby provide more information than referred to in this table. 

If the statement includes some measure of performance, the basis 

of measurement should be stated. 

18.5.18 E Table: Contents of a periodic statement in respect of contingent 

liability investments 


Contents of a periodic statement in respect of contingent liability 

investments 

(1) Changes in value 

The aggregate of money transferred into and out of the 

portfolio of the scheme fund during the account period. 

(2) Open positions 

In relation to each open position in the portfolio of the 

scheme fund at the end of the account period, the unrealised 

profit or loss to the portfolio of the scheme fund (before 

deducting or adding any commission which would be payable 

on closing out). 

(3) Closed positions 

In relation to each transaction effected during the account 

period to close out a position of the scheme fund, the resulting 

profit or loss to the portfolio of the scheme fund after 

deducting or adding any commission. 

(Instead of the specific detail required by Items 2 or 3, the 

statement may show the net profit or loss in respect of the 

overall position of the scheme fund in each contract) 

(4) Aggregate of contents 

The aggregate of each of the following in, or relating to, the 

portfolio of the scheme fund at the close of business on the 

valuation date: 

… 

(d) commissions attributable to transactions during the 

period or a statement that this information has been 

117 

Appendix

… 

separately disclosed in writing on earlier statements or 

confirmations to the participant investor. 

(5) Option account valuations 

In respect of each open option comprising the portfolio of the 

scheme fund on the valuation date: 

(a) … 

… 

Options account valuations may show an average trade price 

and market price in respect of an option series where a 

number of contracts within the same series have been 

purchased on behalf of the scheme fund. 

18.10 UCITS qualifiers, AIFM qualifiers and service companies 

… 

18.10.2 R COBS 4 and COBS 12.4 apply to an AIFM qualifier. 

… 

TP1 Transitional Provisions 

(1) (2) (3) (4) (5) (6) 

… 

Material to 


transitional 

provision 

applies 

2.23 The changes to 

COBS set out 

in Annex 

[amending 

COBS] of the 



Fund Managers 

Directive 

Instrument 

2013 

Transitional 

provision 

R (1) Where a firm 

meets the conditions 

in (2) the changes 

effected by the 

Annex listed in 

column (2) do not 

apply and therefore 

the provisions in 

COBS amended by 

that Annex will 

continue to apply as 

118 

Transition 

al 

provision: 

date in 

force 

From 22 

July 2013 

until 21 

July 2014 

Handbook 

provisions: 

coming into 

force 

22 July 2013 

Appendix

they were in force as 

at 21 July 2013. 

(2) the conditions 

are: (a) the firm falls 

within regulation 

68(1) of the AIFMD 

UK regulation; and 

(b) the firm does not 

have a Part 4A 

permission to 


119 

Appendix

Annex J 

Amendments to the Client Assets sourcebook (CASS) 


Part I: Comes into force on 22 July 2013 

1 Application and general provisions 

… 

1.4 Application: particular activities 

… 

… 

Depositaries 

120 

Appendix 

1.4.6A G Firms acting as a depositary of an AIF are reminded of the obligations in 

FUND 3.11 (Depositaries) as well as those in [chapter IV (Depositary)] of the 

AIFMD level 2 regulation, which apply in addition to those in CASS. 

1.4.7 R Subject to CASS 1.4.6R, The remainder of CASS applies to a depositary, when 

acting as such, with the following general modifications: 'client' means 

'trustee', 'trust', 'AIF', 'AIFM acting on behalf of the AIF', or 'collective 

investment scheme' as appropriate. 

… 

6 Custody rules 


(1) except in the mandate rules, 'client' means 'trustee', 'trust' or 'collective 

investment scheme' as appropriate; and 

(2) in the mandate rules, 'client' means 'trustee', 'collective investment 

scheme' or 'collective investment scheme instrument' as appropriate. 

6.1.1 R This chapter (the custody rules) applies to a firm: 

… 

(1A) when it holds financial instruments belonging to a client in the course 

of its MiFID business; and/or 

(1B) when it is safeguarding and administering investments, in the course 

of business that is not MiFID business;

… 

(1C) when it is acting as a depositary of an AIF; and/or 

(1D) when it is acting as a depositary of a UCITS. 

121 

Appendix 

6.1.1B R Firms to which the custody rules apply by virtue of CASS 6.1.1R (1B), (1C) or 

(1D) must also apply the custody rules to those custody assets which are not 

safe custody investments in a manner appropriate to the nature and value of 

those custody assets. 

… 

6.1.16 

BA 

… 

… 

Managers of AIFs and UCITS 

G The custody rules do not apply to a firm that is managing an AIF or managing 

a UCITS in relation to activities which are carried on by that firm in 

connection with or for the purposes of managing the AIF or UCITS. 

Trustees and depositaries (except depositaries of AIFs) 

6.1.16F R When a trustee firm or depositary acts as a custodian for a trust or collective 

investment scheme, (except, in the case of a firm acting as a depositary of an 

AIF), and: 

… 

6.1.16I 

A 

… 

Depositaries of AIFs 

R (1) Subject to (2), when a firm is acting as a depositary of an AIF the firm 

need comply only with the custody rules in the table below: 

Reference Rule 

CASS 6.1.1R, CASS 6.1.9G, CASS 

6.1.9AG and CASS 6.1.16IBG 

Application 

CASS 6.1.22G to CASS 6.1.24G General purpose 

CASS 6.2.3R and CASS 6.2.4R to 

CASS 6.2.6G 

CASS 6.2.7R Holding 

CASS 6.3.1R(1A) and CASS 

6.3.1R(4) 

Registration and recording 

Arranging registration

6.1.16I 

B 

6.1.16I 

C 

… 

CASS 6.5.1R, CASS 6.5.2A R, 

CASS 6.5.3R, CASS 6.5.13R(1), 

CASS 6.5.13R(1A) and CASS 

6.5.14G 

122 

Records, accounts and 

reconciliations 

Appendix 

(2) When a firm is acting as a depositary of an AIF that is an authorised 

AIF the firm must, in addition to the custody rules set out in (1), also 

comply with the custody rules in the table below: 

Reference Rule 

CASS 6.1.1B R Application 

CASS 6.5.4G, CASS 6.5.5R, CASS 

6.5.7G to CASS 6.5.9G and CASS 

6.5.15G 

Records, accounts and 

reconciliations 

G Firms acting as a depositary of an AIF are reminded of the obligations in 

FUND 3.11 (Depositaries) as well as those in [chapter IV (Depositary)] of the 

AIFMD level 2 regulation, which apply in addition to those in CASS 6. 

G A firm (Firm A) to which another firm acting as a depositary of an AIF (Firm 

B) has delegated safekeeping functions in accordance with FUND 3.11.25R 

(Delegation: safekeeping) will not itself be acting as a depositary of an AIF in 

respect of that AIF. CASS 6.1.16IAR will not apply to Firm A in respect of 

that AIF. However, Firm A may be safeguarding and administering 

investments in respect of that AIF. 

6.5 Records, accounts and reconciliations 

… 

6.5.4 G (1) Carrying out internal reconciliations of the safe custody assets held for 

each client with the safe custody assets held by the firm and third 

parties is an important step in the discharge of the firm’s obligations 

under CASS 6.5.2R (Records and accounts) or in the case of a firm 

acting as a depositary of an AIF that is an authorised AIF under article 

[89(1)(b) (Safekeeping duties with regard to assets held in custody)] of 

the AIFMD level 2 regulation (or under that article as applied by FUND 

App 1 1.4.1R in respect of an authorised AIF managed by a small 

authorised UK AIFM) and, where relevant (in either case), SYSC 4.1.1R 

(General requirements) and SYSC 6.1.1R (Compliance). 

… 

6.5.7 G Where a firm deposits safe custody assets belonging to a client with a third 

party, in complying with the requirements of CASS 6.5.6R or in the case of a 

firm acting as a depositary of an AIF that is an authorised AIF with the 

requirements of article [89(1)(c) (Safekeeping duties with regard to assets held

… 

123 

Appendix 

in custody)] of the AIFMD level 2 regulation (or under that article as applied 

by FUND App 1 1.4.1R in respect of an authorised AIF managed by a small 

authorised UK AIFM), the firm should seek to ensure that the third party will 

deliver to the firm a statement as at a date or dates specified by the firm which 

details the description and amounts of all the safe custody assets credited to 

the account, and that this statement is delivered in adequate time to allow the 

firm to carry out the periodic reconciliations required in CASS 6.5.6R or in the 

case of a firm acting as a depositary of an AIF that is an authorised AIF the 

reconciliations required in article [89(1)(c) (Safekeeping duties with regard to 

assets held in custody)] of the AIFMD level 2 regulation (or under that article 

as applied by FUND App 1 1.4.1R in respect of an authorised AIF managed 

by a small authorised UK AIFM). 

6.5.8 G A firm should perform the reconciliation required by CASS 6.5.6R or in the 

case of a firm acting as a depositary of an AIF that is an authorised AIF the 

reconciliation required by article [89(1)(c) (Safekeeping duties with regard to 

assets held in custody)] of the AIFMD level 2 regulation (or under that article 

as applied by FUND App 1 1.4.1R in respect of an authorised AIF managed 

by a small authorised UK AIFM): 

… 

… 

6.5.13 R A firm must inform the FSA in writing without delay: 

… 

(1) if it has not complied with, or is unable, in any material respect, to 

comply with the requirements in CASS 6.5.1R, CASS 6.5.2R or CASS 

6.5.6R; or 

(1A) in the case of a firm acting as a depositary of an AIF, if it has not 

complied with, or is unable, in any material respect, to comply with 

the requirements in CASS 6.5.1R and/or articles [89(1)(b) or 89(1)(c) 

(Safekeeping duties with regard to assets held in custody)] of the 

AIFMD level 2 regulation (or those articles as applied by FUND App 

1 1.4.1R in respect of an authorised AIF managed by a small 

authorised UK AIFM); or 

… 

Audit of compliance with the MiFID custody rules 

8 Mandates 

8.1 Application

… 

8.1.2A R The mandate rules do not apply to a firm: 

… 

124 

Appendix 

(2) in relation to safe custody assets that the firm is holding, or in respect of 

which the firm is carrying on safeguarding and administration of assets 

(without arranging), acting as a depositary of an AIF or acting as a 

depositary of a UCITS in accordance with CASS 6; or 

… 

8.2 Definition of mandate 

8.2.1 R A mandate is any means that give a firm the ability to control a client’s assets 

or liabilities, which meet the conditions in (1) to (5): 

… 

(4) they put the firm in a position where it is able to give any or all of the 

types of instructions described in (a) to (d): 

… 

(c) instructions to another person in relation to an asset of the client, 

where that other person is responsible to the client for holding 

that asset (including where that other person is safeguarding and 

administering investments, acting as a depositary of an AIF or 

acting as a depositary of a UCITS); 

… 

9 Prime brokerage 

9.2 Prime broker's daily report to clients 

… 

9.2.2 G Where a firm has entered into an agreement with a client pursuant to article 

[91 (Reporting obligations for prime brokers)] of the AIFMD level 2 

regulation (or under that article as applied by FUND App 1 1.4.1R in respect 

of an authorised AIF managed by a small authorised UK AIFM), and to the 

extent that the firm makes available to the client statements as specified by 

that article, the FCA will treat the obligations under CASS 9.2.1R as satisfied 

by the firm. 

9.3 Prime brokerage agreement disclosure annex 

9.3.2 G (1) …

125 

Appendix 

(2) A Subject to paragraph (3), a prime brokerage firm should not enter 

into "right to use arrangements" for a client's safe custody assets unless: 

(a) … 

are each satisfied that the firm has adequate systems and controls to 

discharge its obligations under Principle 10 which include (where 

applicable): 

… 

(3) Paragraph (2) does not apply where the prime brokerage firm is also 

acting as a depositary of an AIF which is an unauthorised AIF and 

exercises a right of reuse in respect a safe custody asset of that 

unauthorised AIF in accordance with FUND [3.11.21R (Reuse of 

assets)]. 

10 CASS resolution pack 

10.1 Application, purpose and general provisions 

Application 

10.1.1 R (1) Subject to (2) this chapter applies to a firm when it: 

(a) holds financial instruments, or is safeguarding and 

administering investments, is acting as a depositary of an AIF or 

is acting as a depositary of a UCITS, in accordance with CASS 

6; and/or 

… 

Part II: Comes into force on 22 July 2014 

6 Custody rules 


… 

Operators of regulated collective investment schemes 

6.1.16B R The custody rules do not apply to a firm when it acts as the operator of a 

regulated collective investment scheme, in relation to activities carried on for 

the purpose of, or in connection with, the operation of the scheme. [deleted]

Annex K 

Amendments to the Supervision manual (SUP) 



… 

3 Auditors 

… 

3.10 Duties of auditors: notification and report on client assets 

… 

3.10.5 R Client assets report 

… 

… 

126 

Appendix 

(3) in the case of an investment management firm, personal investment 

firm, a UCITS firm, securities and futures firm, firm acting as a 

depositary of an AIF, firm acting as a depositary of a UCITS or 

BIPRU investment firm, when a subsidiary of the firm is during the 

period a nominee company in whose name custody assets of the firm 

are registered during the period, that nominee company has 

maintained throughout the period systems for the custody, 

identification and control of custody assets which: 

… 

3 Annex 1R Auditor's client assets report 

… 

… 

Instructions for Part 1: 

… 

** In accordance with SUP 3.10.5R(3), the opinion relating to the nominee 

company is only required to be included in the case of a nominee company in 

whose name custody assets are registered where that company is a subsidiary of 

an investment management firm, personal investment firm, a UCITS firm, 

securities and futures firm, firm acting as a depositary of an AIF or a UCITS or 

BIRPU investment firm.

10 Approved persons 

… 

Internally managed corporate AIFs 

127 

Appendix 

10.1.28 G In accordance with regulation [x] of the AIFMD UK Regulation this chapter 

does not apply to an internally managed corporate AIF. 

… 

10.6 Governing functions 

… 

10.6.2 R Each of the governing functions (other than the non-executive function and 

the function described in SUP 10.6.4R(2)) includes where apportioned 

under SYSC 2.1.1R or SYSC 4.3.1R and SYSC 4.4.3R (or, for a full scope 

UK AIFM and small authorised UK AIFM of an authorised AIF, where 

apportioned under [article 60(1))] of the AIFMD level 2 regulation (as 

applied by FUND App 1 1.4.1R for a small authorised UK AIFM of an 

authorised AIF)): 

… 

(1) … 

10.7 Required functions 

… 

Compliance oversight function (CF10) 

10.7.8 R The compliance oversight function is the function of acting in the capacity 

of: 

… 

(1) a director or senior manager who is allocated the function set out in 

SYSC 3.2.8R or SYSC 6.1.4R(2); or 

(2) for a full scope UK AIFM or a small authorised UK AIFM of an 

authorised AIF, a person allocated the function set out in article 

[61(3)(b)] of the AIFMD EU regulation (as applied by FUND App 1 

1.4.1R for a small authorised UK AIFM of an authorised AIF). 

10.8 Systems and control function 

AIFMs

128 

Appendix 

10.8.9 G For a full scope UK AIFM and a small authorised UK AIFM of an 

authorised AIF the requirement to have an employee which is responsible 

for reporting to the governing body of the firm, or the audit committee in 

relation to the matters referred to in SYSC 10.8.1R(2) and (3) are derived 

from the AIFMD level 2 regulation (as applied by FUND App 1 1.4.1R for 

a small authorised UK AIFM of an authorised AIF), which imposes 

obligations on such firms to have a permanent risk management function 

and, where appropriate and proportionate in respect of their business, an 

internal audit function. 

… 

13 Exercise of passport rights by UK firms 

… 


… 

13.2.4 G A UK firm that is an AIFM will only be entitled to carry on an activity 

under AIFMD in another EEA State if it is a full scope UK AIFM. 

… 

13.3 Establishing a branch in another EEA State 

… 

The conditions for establishing a branch 

13.3.2 G A UK firm other than a UK pure reinsurer cannot establish a branch in 

another EEA State for the first time under an EEA right unless the relevant 

conditions in paragraphs paragraph 19(2), (4) and (5) of Part III of 

Schedule 3 to the Act are satisfied. It is an offence for a UK firm which is 

not an authorised person to contravene this prohibition (paragraph 21 of 

Part III of Schedule 3 to the Act). These conditions are that: 

… 

… 

(2A) If the UK firm’s EEA right relates to providing collective portfolio 

management services under the UCITS Directive, the FCA has 

provided to the Host State regulator: 

… 

(3) … 

(b) in any other cases (except in the case of a firm passporting 

under AIFMD): 

…

129 

Appendix 

13.3.4B G If the UK firm is passporting under AIFMD, it may establish a branch in 

another EEA State as soon as the conditions in SUP 13.3.2G(1) and (2) are 

met. 

13.3.5 G … 

Issue of a consent notice to the Host State regulator 

(1B) If the UK firm's EEA right derives from AIFMD, the FCA will give 

the Host State regulator a consent notice within two months of 

having received the notice of intention and immediately inform the 

UK firm pursuant to SUP 13.3.6G unless the FCA is not satisfied 

that the UK firm complies or will continue to comply with AIFMD. 

… 

13.3.6 G … 

13.3.7 G … 

(4) Where a consent notice is given under the AIFMD it must include a 

confirmation that the UK firm has been authorised by the FCA in 

accordance with AIFMD. 

(2) If the FSA decides to refuse to give a consent notice, then paragraph 

19(12) of Part III of Schedule 3 to the Act requires the FSA to give 

the UK firm a decision notice within three months of the date on 

which it received the UK firm's notice of intention (two months in 

the case of a UK firm which is a UCITS management company or an 

AIFM). The UK firm may refer the matter to the Tribunal. 

UCITS management companies: other information to be provided to the Host 

State 

13.3.8 G A UK firm seeking to provide collective portfolio management services 

under the UCITS Directive from a branch in another EEA State, is advised 

that… 

… 

13.4 Providing cross-border services into another EEA State 

… 

13.4.2 G A UK firm, other than a UK pure reinsurer or an AIFM exercising an EEA 

right to market an AIF under AIFMD, cannot start providing cross-border 

services into another EEA State under an EEA right unless it satisfies the 

conditions in paragraphs 20(1) of Part III of Schedule 3 to the Act and, if it 

derives its EEA right from the Insurance Directives, AIFMD, MiFID or the 

UCITS Directive, paragraph 20(4B) of Part III of Schedule 3 to the Act. It is 

an offence for a UK firm which is not an authorised person to breach this 

prohibition (paragraph 21 of Part III of Schedule 3 to the Act).The 

conditions are that:

… 

… 

130 

Appendix 

(2) if the UK firm is passporting under the Insurance Directives, 

AIFMD, MiFID or the UCITS Directive, the firm has received 

written notice from the FSA (including, if the firm is passporting 

under the Insurance Directives, details of any applicable provisions 

as described in SUP 13.4.6G); or 

… 

13.4.2F G A UK firm that is an AIFM may exercise an EEA right to market a UK AIF 

or EEA AIF managed by it under AIFMD when the following conditions 

are satisfied: 

… 

13.4.4 G … 

(1) the UK firm has given the FCA a notice of intention to market the 

AIF in the way specified under SUP 13.5.2R; and 

(2) the FCA has sent a copy of the notice of intention to the Host State 

regulator where the AIF will be marketed and has given the UK 

firm written notice that it has done so. 

Issuing a consent notice or notifying the Host State regulator 

(3) If the UK firm's EEA right derives from AIFMD (other than the EEA 

right to market an AIF (referred to in (4)) paragraph 20(3D) of Part 

III of Schedule 3 to the Act requires the FCA: 

(a) to send a copy of the notice of intention to the Host State 

regulator within one month of receipt; 

(b) include a confirmation that the UK firm has been authorised 

by the FCA in accordance with AIFMD; and 

(c) immediately inform the UK firm that the notice of intention 

and confirmation has been sent to the Host State regulator 

pursuant to SUP 13.4.5G; 

unless the FCA is not satisfied that the UK firm complies or will 

continue to comply with AIFMD. 

(4) If the UK firm's EEA right derives from AIFMD and relates to the 

EEA right to market an AIF, paragraph 20C of Part III of Schedule 3 

to the Act requires the FCA: 

(a) to send a copy of the notice of intention to the Host State 

regulator within 20 working days of receipt; 

(b) include a confirmation that the UK firm has been authorised 

by the FCA to manage AIFs with a particular investment 

strategy; and

131 

Appendix 

(c) where the notice of intention relates to an EEA AIF, inform 

the competent authority of the EEA AIF that the UK firm may 

start marketing the AIF in the EEA States covered by the 

notice of intention; 

unless the FCA considers that either of the conditions in paragraph 

20C(4) of Part III of Schedule 3 to the Act are satisfied. 

(5) The conditions in paragraph 20C(4) of Part III of Schedule 3 to the 

Act are that: 

(a) the UK firm complies and will continue to comply with 

AIFMD; and 

(b) where the AIF is a feeder AIF, that its master AIF is a UK AIF 

or EEA AIF that is managed by a full scope UK AIFM or a full 

scope EEA AIFM. 

13.4.5 G When the FSA sends a copy of a notice of intention or if it gives a consent 

notice to the Host State regulator, it must inform the UK firm in writing 

that it has done so (paragraphs 20(3B)(b), (3D)(c) and (4) and 20C(3) of 

Schedule 3 to the Act). 

… 

13.5 Notices of intention 

… 

Specified contents: notice of intention to provide cross-border services 

13.5.2 R A UK firm wishing to provide cross-border services into a particular EEA 

State for the first time under an EEA right other than under the auction 

regulation must submit a notice in the form set out in: 

… 

… 

13.6 Changes to branches 

… 

(6) SUP 13 Annex 8AR, if the UK firm is providing cross-border 

services under AIFMD to manage an AIF in another EEA State. 

(7) SUP 13 Annex 8BR, if the UK firm is providing cross-border 

services under AIFMD to market an AIF in another EEA State. 

Firms passporting under AIFMD 

13.6.9C G (1) If a UK firm has exercised an EEA right under the AIFMD, and 

established a branch in another EEA State, regulation 17A(1) states 

that the UK firm must not make a material change in the requisite 

details of the branch or the identity of the AIFs it manages in the 

EEA State in which it has established a branch (see SUP 13 Annex 1),

13.6.10 G … 

unless: 

(a) it has satisfied the requirements of regulation 17A(4) for a 

planned change; or 

(b) it has satisfied the requirements of regulation 17A(5) for a 

unplanned change. 

132 

Appendix 

(2) The requirements in regulation 17A(4) for a planned change are that: 

(a) the UK firm has given notice to the FCA stating the details of 

the proposed change; and 

(b) either the FCA: 

(i) has consented to the change; or 

(ii) has not objected to the change in the period of one 

month beginning on the day on which the UK firm gave 

notice. 

(3) The requirements in regulation 17A(5) for an unplanned change are 

that: 

(a) the UK firm has given notice to the FCA immediately after an 

unplanned change has occurred; and 

(b) the FCA has consented to the change. 

Changes arising from circumstances beyond the control of a UK firm 

(3) Neither this This guidance nor that set out at SUP 13.6.4G or 13.6.5G 

is not applicable to MiFID investment firms or AIFMs. 

The process 

13.6.11 G When the FSA receives a notice from a UK firm other than a MiFID 

investment firm (see SUP 13.6.5G(1) and SUP 13.6.7G(1)), or a pure 

reinsurer (see SUP 13.6.9BR) or an AIFM (see SUP 13.6.9CG) it is 

required by regulations 11(4) and 13(4) to either refuse, or consent to the 

change within a period of one month from the day on which it received the 

notice. 

… 

The Process: AIFMs 

13.6.18 G (1) When the FCA receives a notice from an AIFM (see SUP 13.6.9CG) 

and the change means the AIFM no longer complies with AIFMD, the 

FCA must inform the AIFM without undue delay that: 

(a) the FCA objects to the change; and 

(b) the AIFM must not implement the change.

133 

Appendix 

(2) If a planned change is implemented or an unplanned change takes 

place and as a result the AIFM no longer complies with AIFMD, the 

FCA must take all due measures, including, if necessary, the express 

prohibition of the marketing of the AIF. 

13.7 Changes to cross-border services 

13.7.1 G Where a UK firm is exercising an EEA right under the UCITS Directive, 

MiFID or, the Insurance Directives or AIFMD and is providing crossborder 

services into another EEA State, any changes to the details of the 

services are governed by the EEA Passport Rights Regulations… 

… 


13.7.13 G If a UK firm has exercised an EEA right deriving from AIFMD to provide 

cross-border services to manage an AIF, regulation 17A(2) states that the 

UK firm must not make a material change to: 

(1) the programme of operations, or the EEA activities, to be carried out 

in exercise of that right; or 

(2) the EEA States in which it manages AIFs; or 

(3) the identity of the AIFs it manages in those EEA States; 

unless the UK firm complies with the relevant requirements set out in 

regulation 17A(4) for a planned change (as set out in SUP 13.6.9CG(2)) or 

regulation 17A(5) for an unplanned change (as set out in SUP 

13.6.9CG(2)). 

13.7.14 G If a UK firm has exercised an EEA right deriving from AIFMD to provide 

cross-border services to market an AIF, regulation 17A(3) states that it 

must not make a material change to any of the following matters: 

(1) the programme of operations identifying the AIF the AIFM intends to 

market and information on where the AIF is established; 

(2) the AIF rules or instruments of incorporation; 

(3) the depositary of the AIF; 

(4) the description of, or any information on, the AIF available to 

investors; 

(5) if the AIF is a feeder AIF, the jurisdiction where the master AIF is 

established; 

(6) any additional information referred to in FUND [3.2.2R (Prior 

disclosure of information to investors)], for each AIF the AIFM 

intends to market; 

(7) the EEA States in which the AIFM intends to market the units or

shares of the AIF to an investor that is a professional client; and 

134 

Appendix 

(8) information about arrangements made for the marketing of the AIF 

and, where relevant, arrangements established to prevent the AIF 

from being marketed to an investors that is a retail client, including in 

the case where the AIFM relies on the activities of independent 

entities to provide investment services in respect of the AIF; 

unless the UK firm complies with the relevant requirements set out in 

regulation 17A(4) for a planned change (as set out in SUP 13.6.9C G(2)) or 

regulation 17A(5) for an unplanned change (as set out in SUP 13.6.9C 

G(2)). 

13.8 Changes of details: provision of notices to the FSA 

13.8.1 R (1) Where a firm is required to submit a notice of a change to a branch 

referred to in SUP 13.6.5G(1), SUP 13.6.5BG(1), SUP 13.6.7G(1), 

SUP 13.6.8G , SUP 13.6.9BR and SUP 13.6.10G(1), and SUP 

13.6.9CG or a notice of a change to cross-border services referred to 

in SUP 13.7.3G(1) , SUP 13.7.3AG(1), SUP 13.7.5G(1), and SUP 

13.7.6G and SUP 13.7.13G it must complete and submit that notice in 

accordance with the procedures set out in SUP 13.5 for notifying the 

establishing of a branch or the provision of cross-border services. 

… 

13 Annex 1R Passporting: Notification of intention to establish a branch in another 

EEA state 

… 

[For amended form see end of instrument] 

After SUP 13 Annex 7 insert the following new annex. The text is not underlined. 

SUP 13 

Annex 8 

Passporting: AIFMD 

R This annex consists of one or more forms. Forms can be completed online 



Passporting: AIFMD- cross border services (management) - SUP 13 Annex 

8A 

Passporting: AIFMD- cross border services (marketing) - SUP 13 Annex 8B

13A Qualifying for authorisation under the Act 

… 

13A.1 Application 

… 

135 

Appendix 

[For forms see end of instrument] 

13A.1.3 G (1) Under the Gibraltar Order made under section 409 of the Act, a 

Gibraltar firm is treated as an EEA firm under Schedule 3 to the Act if 

it is: 

… 

… 

… 

(d) authorised in Gibraltar under the MiFID; 

(e) authorised in Gibraltar under the UCITS Directive. 

13A.4 EEA firms establishing a branch in the United Kingdom 

… 

13A.4.4 G … 

… 

The notification procedure 

(2) Although the FSA is not required to notify the applicable provisions 

to an EEA firm passporting under the Insurance Mediation Directive, 

or AIFMD, these provisions are set out in SUP 13A Annex 1G 

(Application of the Handbook to Incoming EEA Firms). 

13A.5 EEA firms providing cross-border services into the United Kingdom 

… 

13A.5.4 G … 

The notification procedure

… 

13A 

Annex 

1G 

… 

Module of 

Handbook 

… 

136 

Appendix 

(2) Although the FSA is not required to notify the applicable provisions 

to an EEA Firm passporting under the Insurance Mediation Directive, 

or AIFMD these provisions are set out in SUP 13A Annex 1G 

(Application of the Handbook to Incoming EEA Firms). 

Application of the Handbook to Incoming EEA firms 

Potential application to an incoming 

EEA firm with respect to activities 

carried on from an establishment of 

the firm (or its appointed 

representative) in the United 

Kingdom 

SYSC … … 

… 

The common platform requirements 

in SYSC 4 - 10 apply as set out in 

Part 2 of SYSC 1 Annex 1 

(Application of the common 

platform requirement). 

SYSC 1 Annex 1 2.6F provides that 

the common platform requirements 

do not apply to an incoming EEA 

AIFM branch, except the AIFMD 

Host State requirements and certain 

requirements in respect of financial 

crime. 

… 

SYSC 19A and 19B does do not 

apply. 

DISP Generally Applies applies (DISP 

1.1.1G) and applies in a limited way 

in relation to MiFID business. 

For an incoming EEA AIFM branch 

DISP applies (subject to some 

Potential application to an incoming 

EEA firm with respect to activities 

carried on other than from an 

establishment of the firm (or its 

appointed representative) in the 


Generally does Does not apply 

(DISP 1.1.1G). 

However, for an incoming EEA firm 

which is a UCITS management

limitations, see DISP 1.1.3R), 

except for an incoming EEA AIFM 

branch of a closed-ended corporate 

AIF, in which case DISP does not 

apply. 

COMP Applies, except in relation to the 

passported activities of an MIFID 

investment firm, or a BCD credit 

institution other than an electronic 

money institution within the 

meaning of article 1(3)(a) of the E- 

Money Directive that has the right to 

benefit from the mutual recognition 

arrangements under the Banking 

Consolidation Directive (see the 

definition of participant firm), a 

UCITS management company 

carrying on non-core services under 

Article 6.3 of the UCITS Directive 

and an incoming AIFM branch 

carrying on either AIFM 

management functions for an 

unauthorised AIF or non-core 

services under Article 6.4 of AIFMD 

(see the definition of “participant 

firm”). However, an MiFID 

investment firm or BCD credit 

institution a firm specified above 

may be able to apply for top-up 

cover in relation to its passported 

activities (see COMP 14 

(Participation by EEA firms)). 

… 

FUND FUND 3.8 (Prime brokerage firms) 

applies to an incoming EEA AIFM 

branch. 

… 

13A 

Annex 

2G 

FUND 10 (Operating on a cross 

border basis), provides guidance for 

an incoming EEA AIFM branch. 

Matters reserved to a Home State regulator 

137 

Appendix 

company managing a UCITS scheme 

or an AIFM managing an authorised 

AIF, DISP applies (subject to some 

limitations, see DISP 1.1.3R). 

Does not apply in relation to the 

passported activities of an MiFID 

investment firm, or a BCD credit 

institution, a UCITS management 

company carrying on non-core 

services under Article 6.3 of the 

UCITS Directive or an incoming 

EEA AIFM in respect of AIFM 

management functions carried on for 

an unauthorised AIF or non-core 

services under Article 6.4. 

Otherwise, COMP may apply, but 

the coverage of the compensation 

scheme is limited for non-UK 

activities (see COMP 5). 

Does not apply, except FUND 10 

(Operating on a cross border basis), 

which provides guidance for an EEA 

AIFM managing an AIF on a 

services basis or marketing an AIF 

using the marketing passport under 

AIFMD.

G …Requirements in the interest of the general good 

2. … 

… 

(1) the Single Market Directives expressly reserve 

responsibility for the prudential supervision of a 

MiFID investment firm, BCD credit institution, 

UCITS management company, AIFM or 

passporting insurance undertaking to the Firm's 

Home State regulator… 

(2) there is no explicit "general good" provision in 

MiFID or AIFMD. Rather, MiFID states exactly 

what the Host State regulator regulates (see 

paragraphs 8 - 10) the responsibilities for a host 

state regulator under MiFID are set out in 

paragraphs 8 – 10 and under AIFMD are set out 

in paragraphs 11G – 11J; 

Requirements under AIFMD 

11G Article 33(5) of AIFMD prohibits Host States from 

imposing additional requirements on an AIFM in 

relation to matters covered by AIFMD if the firm is 

managing an AIF on a cross border basis by 

establishing a branch in that EEA State or providing 

cross border services to manage an AIF in that EEA 

State, except in the cases expressly permitted (see 

11H below). 

11H In accordance with article 45(2) (Responsibility of 

competent authorities in Member States) of AIFMD 

the supervision of an AIFM’s compliance with 

articles 12 (General principles) and 14 (Conflicts of 

interest) are the responsibility of the Host State of 

the AIFM where the AIFM manages and/or markets 

an AIF through a branch in that EEA State. 

11I As a result an incoming EEA AIFM branch is 

required to comply with the AIFMD Host State 

requirements (as set out below): 

(a) FUND 3.8; 

(b) SYSC 4.1.2CR; 

(c) SYSC 10.1.22R to SYSC 10.1.26R; 

(d) COBS 2.1.1R; and 

138 

Appendix

(e) COBS 2.1.4R. 

11J In accordance with article 32(5) of AIFMD 

arrangements referred to in point (h) of Annex IV of 

AIFMD for the marketing of AIFs shall be subject to 

the laws and supervision of the Host State of the 

AIFM. 

11K This means that a full scope EEA AIFM that is 

marketing an AIF in the United Kingdom using the 

marketing passport should have regard to the 

financial promotions regime, as explained in PERG 

8.37.5G(2) (Communications with investors in 

relation to draft documentation). 

… 

14 Incoming EEA firms changing details, and cancelling qualification for 

authorisation 

… 

14.2 Changes to branch details 

… 


139 

Appendix 

14.2.15 G Where an EEA AIFM has established a branch in the UK, regulation 7A 

states that it must not make a material change to: 

(1) the requisite details of the branch; or 

(2) the identity of the AIFs that the EEA AIFM intends to manage; 

unless it has complied with the relevant requirement in regulation 7A(3). 

14.2.16 G The relevant requirement in regulation 7A(3) is that the Home State 

regulator has informed the FCA that it has approved the proposed change. 

14.3 Changes to cross-border services 

14.3.1 Where an incoming EEA firm passporting under the MiFID, UCITS Directive or, 

Insurance Directives or AIFMD is exercising an EEA right and is providing 

cross-border services into the United Kingdom, the EEA Passport Rights

Regulations govern any changes to the details of those services… 

… 


140 

Appendix 

14.3.8 G Where an EEA AIFM is providing cross-border services to manage an AIF 

in the UK, regulation 7A states it must not make a material change to: 

(1) the particulars of the programme of operations to be carried out in the 

UK, including the description of the particular EEA activities being 

carried on; or 

(2) the identity of the AIFs that the EEA AIFM intends to manage; 


14.3.9 G Where an EEA AIFM is providing cross-border services to market an AIF 

in the UK, regulation 7A states that it must not make a material change to: 

(1) the documents and information set out in Annex IV to AIFMD; or 

(2) the statement to the effect that the EEA AIFM is authorised to manage 

AIFs with a particular management strategy; 


14.3.10 G The relevant requirement in regulation 7A(3) is that the Home State 

regulator has informed the FCA that it has approved the proposed change. 

… 

15 Notifications to the FSA 

… 

15.3 General notification requirements 

… 

UK AIFMs 

15.3.26 R A UK AIFM must notify the FCA before implementing any material changes 

to the conditions under which it was granted permission to manage an AIF, 

in particular if there are material changes to the information it provided in its 

application for that permission. 

[Note: article 10(1) of AIFMD]

141 

Appendix 

15.3.27 R Where a small authorised UK AIFM no longer meets the conditions in 

regulation 11 of the AIFMD UK regulation (within the meaning of Chapter 

1 of the AIFMD level 2 regulation) it must: 

… 


… 

(1) immediately notify the FCA; and 

(2) within 30 calendar days, apply to the FCA for a variation of its 

permission to become a full scope UK AIFM. 

[Note: article 3(3) second and third paragraphs of AIFMD] 

16.1.1C D The directions and guidance in SUP 16.18 apply in respect of the following 

types of AIFM: 

… 

(1) a small registered UK AIFM; 

(2) a non-EEA AIFM that is not a small AIFM that is marketing in the 

United Kingdom; and 

(3) a non-EEA AIFM that is a small AIFM that is marketing in the United 

Kingdom. 

16.1.3 R Application of different sections of SUP 16 (excluding SUP 16.13 and SUP 

16.15) 

(1) 

Sections(s) 

… 

(2) Categories of firm to which section 

applies 

SUP 16.14 A CASS large firm and a CASS medium 

firm 

SUP 16.18 A full scope UK AIFM and a small 

authorised UK AIFM 

Note 1 [deleted] 

(3) Applicable 

rules and guidance 

Entire section 

SUP 16.18.3R 

Note 2 = The application of SUP 16.13 is set out under SUP 16.13.1G and 

the application of SUP 16.15 is set out under SUP 16.15.1G. 

Note 3 = The application of SUP 16.18 for the types of AIFMs specified in 

SUP 16.1.1C D is set out under SUP 16.18.2G.

… 

16.3 General provisions on reporting 

… 

Structure of the chapter 

16.3.2 G This chapter has been split into the following sections, covering: 

… 

… 

(11) client money and asset return (SUP 16.14); and 

(12) reporting under the Electronic Money Regulations; and 

(13) AIFMD reporting (SUP 16.18). 

16 Reporting requirements 

… 

16.14 Client money and asset return 

… 

Report 

16.14.4 R For the purposes of the CMAR: 

… 

142 

Appendix 

(2) safe custody assets are those to which the custody rules in CASS 6 

apply but only in relation to the holding of financial instruments (in 

the course of MiFID business) and, the safeguarding and 

administration of assets (without arranging) (in the course of 

business that is not MiFID business), acting as a depositary of an 

AIF and acting as a depositary of a UCITS. 

After SUP 16.17 insert the following new chapter. The text is not underlined. 

16.18 AIFMD reporting 

Application 

16.18.1 G This section applies to the following types of AIFM in accordance with 

SUP 16.18.2G:

(1) a full scope UK AIFM; 

(2) a small authorised UK AIFM; 

(3) a small registered UK AIFM; 

143 

Appendix 

(4) a non-EEA AIFM that is not a small AIFM that is marketing in the 

United Kingdom; and 

(5) a non-EEA AIFM that is a small AIFM that is marketing in the 

United Kingdom. 

16.18.2 G Type of AIFM Rules Directions AIFMD level 2 

regulation 

full scope UK 

AIFM 

small authorised 

UK AIFM 

small registered 

UK AIFM 

non-EEA AIFM 

that is not a 

small AIFM that 

is marketing in 


Kingdom 

non-EEA AIFM 

that is a small 

AIFM that is 



FUND 3.4 

(Reporting 

obligation to the 

FCA) and SUP 

16.18.5R 

Article [110] 

(Reporting to 

competent 

authorities) (as 

replicated in 

SUP 16.18.4EU) 

SUP 16.18.6R Article [110] 

(Reporting to 

competent 


replicated in 

SUP 16.18.4EU) 

SUP 16.18.7D Article [110] 

(Reporting to 

competent 


replicated in 

SUP 16.18.4EU) 


(Reporting to 

competent 


replicated in 

SUP 16.18.4EU) 


(Reporting to 

competent 


replicated in 

SUP 16.18.4EU)

Purpose 

144 

Appendix 

16.18.3 G The purpose of this section is to specify the end dates for reporting periods 

for all AIFMs to whom this section applies and to specify the reporting 

period for small AIFMs to whom this section applies. The reason for this is 

that although article [110] of the AIFMD level 2 regulations (Reporting to 

competent authorities) (as replicated in SUP 16.18.4EU) applies certain 

reporting requirements directly to all AIFMs to whom this section applies, it 

does not specify the end dates for reporting periods for an AIFM and, for 

small AIFMs, it does not specify the reporting period. Therefore competent 

authorities are required to specify these requirements. 

Article [x] of the AIFMD level 2 regulation 

16.18.4 EU [Article [110] of the AIFMD level 2 regulation (Reporting to competent 

authorities) to be inserted] 

Reporting periods and end dates 

16.18.5 R The reporting period of a full scope UK AIFM must end on the following 

dates: 

(1) for AIFMs that are required to report annually, on 31 December 

each calendar year; 

(2) for AIFMs that are required to report half-yearly, on 30 June and 31 

December in each calendar year; and 

(3) for AIFMs that are required to report quarterly, on 31 March, 30 

June, 30 September and 31 December in each calendar year. 

16.18.6 R A small authorised UK AIFM must report annually and its reporting period 

must end on 31 December in each calendar year. 

16.18.7 D A small registered UK AIFM must report annually and its reporting period 

must end on 31 December in each calendar year. 

16.18.8 D The reporting of a non-EEA AIFM that is not a small AIFM that is 

marketing in the United Kingdom must end on the following dates: 

(1) for AIFMs that are required to report annually, on 31 December 

each calendar year; 

(2) for AIFMs that are required to report half-yearly, on 30 June and 31 

December in each calendar year; and 

(3) for AIFMs that are required to report quarterly, on 31 March, 30 

June, 30 September and 31 December in each calendar year. 

16.18.9 D A non-EEA AIFM that is a small AIFM that is marketing in the United 

Kingdom must report annually and its reporting period must end on 31

December in each calendar year. 

16.18.10 G All periods in this section should be calculated by reference to London 

time. 

After TP 1.7 in the Transitional provisions insert the following new text. The text is not 

underlined. 

TP 1.8 AIFMD 

(1) (2) (3) (4) (5) (6) 

Material to which 

the transitional 

provision applies 

1 The changes to 

SUP 16.12 set out 

in Annex 

[amending SUP] of 

the Alternative 

Investment Fund 

Managers Directive 

Instrument 2013, 

other than those 

relating to FSA041 

and FSA042. 

Transitional provision Transitional 

provision: 

date in force 

R (1) Where a firm meets the 

conditions in (2) the 

changes effected by the 

Annex listed in column (2) 

do not apply and therefore 

the provisions in SUP 

16.12 amended by that 

Annex will continue to 

apply as they were in force 

as at 21 July 2013. 

(2) the conditions are: (a) 

the firm falls within 

regulation 68(1) of the 

AIFMD UK regulation; 

and (b) the firm does not 

have a Part 4A permission 

to manage an AIF. 

145 

From 22 July 

2013 until 21 

July 2014 

Appendix 

Handbook 

provisions: 

coming into 

force 

22 July 2013

Annex L 

Amendments to the Dispute Resolution: Complaints sourcebook (DISP) 


… 

1.1.3 R … 

Application to firms 

… 

146 

Appendix 

(4) This chapter, except the complaints data publication rules, also 

applies to an incoming EEA AIFM in respect of complaints from 

eligible complainants concerning AIFM management functions 

carried on for an authorised AIF under the freedom to provide crossborder 

services. 

… 

1.1.5 R This chapter does not apply to: 

… 

(3) an authorised professional firm in respect of expressions of 

dissatisfaction about its non-mainstream regulated activities; and 

(4) complaints in respect of auction regulation bidding; 

(5) a full scope UK AIFM, small authorised UK AIFM or an incoming 

EEA AIFM in respect of complaints concerning AIFM management 

functions carried on for a closed-ended corporate AIF; and 

(6) a depositary in respect of complaints concerning activities carried on 

for: 

(a) an unauthorised AIF which is not a charity AIF; or 

(b) any closed-ended corporate AIF. 

1.1.5-A G References in DISP 1.1.5R to a full scope UK AIFM and small authorised 

UK AIFM carrying on AIFM management functions for a closed-ended 

corporate AIF include where the firm is an internally managed corporate 

AIF. 

…

1 Annex 2G Application of DISP 1 to type of respondent / complaint 

… 

… 

Type of 

respondent / 

complaint 


AIFM, small 

authorised UK 

AIFM or an 

incoming EEA 

AIFM in respect 

of complaints 

concerning AIFM 

management 

functions carried 

on for a closedended 

corporate 

AIF 

a depositary in 

respect of 

complaints 

concerning 

activities carried 

on for an 

unauthorised AIF 

(where the AIF is 

not a charity AIF) 

or any closedended 

corporate 

AIF. 

an incoming EEA 

AIFM in respect 

of complaints 

concerning AIFM 

management 

functions carried 

on for an 


under the 

freedom to 

provide crossborder 

services 

… 

DISP 1.2 

Consumer 

awareness 

rules 

Does not 

apply 

Does not 

apply 

Applies for 

eligible 

complaina 

nts 

DISP 1.3 

Complaints 

handling 

rules 

Does not 

apply 

Does not 

apply 

Applies for 

eligible 

complainant 

s 

DISP 1.4 – 1.8 

Complaints 

resolution 

rules etc. 

Does not 

apply 

Does not 

apply 

Applies for 

eligible 

complainants 

147 

DISP 1.9 

Complaints 

record rule 

Does not 

apply 

Does not 

apply 

Applies for 

eligible 

complainant 

s 

2.6 What is the territorial scope of the relevant jurisdiction? 

Compulsory Jurisdiction 

DISP 1.19 

Complaints 

reporting 

rules 

Does not 

apply 

Does not 

apply 

Applies for 

eligible 

complainant 

s 

Appendix 

DISP 1.10A 

Complaints 

data 

publication 

rules 

Does not 

apply 

Does not 

apply 

Does not 

apply

2.6.1 R (1) … 

2.6.2 G This: 

… 

(2) The Compulsory Jurisdiction also covers complaints about: 

(1) … 

148 

Appendix 

(a) collective portfolio management services provided by an EEA 

UCITS management company managing a UCITS scheme; 

and 

(b) AIFM management functions provided by an incoming EEA 

AIFM managing an authorised AIF; 

from an establishment in another EEA State under the freedom to 

provide cross-border services. 

(2) excludes complaints about business conducted in the United 

Kingdom on a services basis from an establishment outside the 

United Kingdom (other than complaints about collective portfolio 

management services provided by an EEA UCITS management 

company in managing a UCITS scheme, and complaints about AIFM 

management functions provided by an incoming EEA AIFM 

managing an authorised AIF). 

2.7.6 R To be an eligible complainant a person must also have a complaint which 

arises from matters relevant to one or more of the following relationships 

with the respondent: 

… 

(3) the complainant is the holder, or the beneficial owner, of units in a 

collective investment scheme and the respondent is the operator or 

depositary of the scheme: 

(a) the operator of a scheme; 

(b) the depositary of an authorised fund; or 

… (c) the depositary of a charity AIF 

(3A) the complainant is the holder, or the beneficial owner, of units or 

shares in an AIF where the respondent is: 

(a) the AIFM of an unauthorised AIF (apart from a closed-ended 

corporate AIF); 

(b) the AIFM or depositary of an authorised AIF; or

149 

Appendix 

(c) the AIFM or depositary of a charity AIF (apart from a charity 

AIF which is a closed-ended corporate AIF).

Annex M 

Amendments to the Compensation sourcebook (COMP) 


1.4 EEA firms 

150 

Appendix 

1.4.1 G Incoming EEA firms which are conducting regulated activities in the 

United Kingdom under a BCD, IMD, or MiFID or UCITS Directive 

passport are not required to participate in the compensation scheme in 

relation to those passported activities. They may apply to obtain the cover 

of, or ‘top-up’ into, the compensation scheme if these is no cover provided 

by the incoming EEA firm’s Home State compensation scheme or if the 

level or scope of the cover is less than provided by the compensation 

scheme. This is covered by COMP 14. 

… 

1.4.4 G Incoming EEA firms which are passporting into the United Kingdom under 

a UCITS Directive or AIFMD passport in order to manage a UCITS 

scheme or authorised AIF are required to participate in the compensation 

scheme. 

1.4.5 G Incoming EEA firms which are passporting into the United Kingdom under 

an AIFMD passport in order to manage an unauthorised AIF or to carry on 

the activities of managing investments, advising on investments, 

safeguarding and administering investments or arranging (bringing about) 

deals in investments are not required to participate in the compensation 

scheme in relation to those activities, but may choose to ‘top-up’ into the 

compensation scheme if there is no cover provided by the incoming EEA 

firm’s Home State compensation scheme or if the level or scope of the 

cover is less than provided by the compensation scheme. 

… 

4.2 Who is eligible to benefit from the protection provided by the FSCS? 

… 

4.2.2 R Table COMP 4.2.2R Persons not eligible to claim unless COMP 4.3 

applies (see COMP 4.2.1R) 

(1) … 

This table belongs to COMP 4.2.1R

… 

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Appendix 

(18) Alternative investment funds, and anyone who is the AIFM or depositary 

of an alternative investment fund. 

… 

5.5 Protected investment business 

… 

5.5.2 R COMP 5.5.1R only applies if conditions (1) to (4) are satisfied: 

(1) Condition (1) is that the protected investment business was carried 

on from: 

(1) 

(a) 

(2) 

(b) 

(3) 

(c) 

(4) 

(d) 

an establishment of the relevant person in the United 

Kingdom; or 

a branch of a UK firm which is: 

(a) 

(i) a MiFID investment firm established in another EEA 

State; or 

(b) 

(ii) a UCITS management company established in another 

EEA State (but only in relation to managing 

investments (other than collective portfolio 

management), advising on investments or 

safeguarding and administering investments); 

and the claim is an ICD claim; or 

both (1)(a) and (2)(b); or 

(a) 

(i) a UK branch of an EEA UCITS management 

company; or 

(b) 

(ii) an establishment of such an EEA UCITS management 

company in its Home State from which cross-border 

services are being carried on; 

and in either case (d)(i) or (ii) the management company is 

providing collective portfolio management services for a

… 

152 

Appendix 

UCITS scheme but only if the claim relates to that activity. 

(2) Condition (2) is that, for the activities of managing an AIF or 

establishing, operating or winding up a collective investment 

scheme: 

(a) the claim is in respect of an investment in a fund which is 

either: 

(i) an authorised fund; or 

(ii) is not an authorised fund but has its registered office 

or head office in the United Kingdom or is otherwise 

domiciled in the United Kingdom; and 

(b) the claim is not in respect of an investment in a closed-ended 

corporate AIF. 

(3) Condition (3) is that, for the activity of acting as a depositary of an 

AIF, the claim is in respect of a depositary’s activities where 

appointed to act for the following AIFs; 

(a) an authorised AIF; or 

(b) a charity AIF which is not a closed-ended corporate AIF: 

(4) Condition (4) is that, for the activity of safeguarding and 

administering assets the claim is not in respect of a firm’s activities 

where appointed to act as a depositary for an unauthorised AIF 

managed by a small authorised UK AIFM or for a small registered 

UK AIFM. 

6.2 Who is a relevant person? 

… 

6.2.2 G … 

(3) … 

(4) An incoming EEA AIFM managing an authorised AIF from a branch 

in the United Kingdom or under the freedom to provide cross-border 

services, is a relevant person in respect of that activity. 

(5) An incoming EEA AIFM managing an unauthorised AIF is not a 

relevant person in respect of that activity unless it has top-up cover. 

(6) An incoming EEA AIFM carrying on the activities of managing 

investments, advising on investments, safeguarding and 

administering investments or arranging (bringing about) deals in

… 

14.1 Application and Purpose 

Application 

… 

153 

Appendix 

investments is not a relevant person in relation to those activities, 

unless it has top-up cover. 

14.1.2 R This chapter also applies to an incoming EEA firm which is a credit 

institution, or an MIFID investment firm (or both), an IMD insurance 

intermediary, or a UCITS management company or an AIFM. 

Purpose 

14.1.3 G This chapter provides supplementary rules and guidance for an incoming 

EEA firm which is a credit institution, an IMD insurance intermediary, an 

MiFID investment firm, or UCITS management company or AIFM. It 

reflects in part the implementation of the Deposit Guarantee Directive, 

Investors Compensation Directive, and UCITS Directive. This sourcebook 

applies in the usual way to an incoming EEA firm which is exercising EEA 

rights under the Insurance Directives. Such a firm is not affected by the 

Deposit Guarantee Directive, the Investors Compensation Directive or the 

UCITS Directive. 

14.1.4 R … 

(2) … 

(3) Whether an incoming EEA firm which is an AIFM is a participant 

firm in relation to its passported activities depends on the type of 

AIF which it manages. In so far as it manages an authorised AIF 

from a branch in the United Kingdom or under the freedom to 

provide cross-border services, it is a participant firm in respect of 

that activity. In so far as it manages an unauthorised AIF, or carries 

on the activities of managing investments, advising on investments, 

safeguarding and administering investments or arranging (bringing 

about) deals in investments either from a branch in the United 

Kingdom or on a cross-border services basis, it is not a participant 

firm in respect of that activity however it may choose to obtain topup 

cover in respect of these activities if carried on from a branch in 

the United Kingdom. 

14.1.5 G In relation to an incoming EEA firm’s passporting activities, its Home 

State compensation scheme must provide compensation cover in respect of 

business within the scope of the Deposit Guarantee Directive, Investor 

Compensation Directive, and article 6(3) of the UCITS Direcitve and 

article 6(4) of AIFMD, whether that business is carried on from a UK 

branch or on a cross-border services basis. (For an EEA UCITS

14.2 Obtaining top-up cover 

… 

154 

Appendix 

management company or EEA AIFM this is only for certain passported 

activities, namely managing investments (other than collective portfolio 

management or AIFM investment management functions), advising on 

investments or safeguarding and administering investments and, for an 

EEA AIFM, arranging (bringing about) deals in investments). Insurance 

mediation activity relating to non-investment insurance contracts is not 

within the scope of the Deposit Guarantee Directive and the Investor 

Compensation Directive. 

14.2.3 G A notice under COMP 14.2.1R should include details confirming that the 

incoming EEA firm falls within a prescribed category. In summary: 

(1) the firm must be: 

… 

(d) a UCITS management company that carries on the activities 

of managing investments (other than collective portfolio 

management), advising on investments or safeguarding and 

administering investments; and or 

(e) an AIFM that carries on AIFM management functions for an 

unauthorised AIF; or 

(f) an AIFM that carries on the activities of managing 

investments (other than AIFM management functions), 

advising on investments, safeguarding and administering 

investments and arranging (bringing about) deals in 

investments.

Annex N 

Amendments to the Perimeter Guidance manual (PERG) 

In this Annex, all the text is new and is not underlined. 

8.37 AIFMD Marketing 

Introduction 

155 

Appendix 

8.37.1 G (1) The AIFMD UK regulation contains a prohibition on the marketing 

of an AIF. Regulation [48] (Prohibition on marketing) provides that 

a person “must not market an AIF to an investor domiciled or with a 

registered office in the United Kingdom” unless this is allowed by 

the AIFMD UK regulation. 

(2) Marketing of an AIF is allowed by the AIFMD UK regulation: 

(a) of AIFs managed by certain categories of small AIFMs (see 

PERG 8.37.9G); or 

(b) if the marketing is passive marketing (see PERG 8.37.10G); 

or 

(c) if the FCA has approved the marketing or received a consent 

notice from another competent authority (see PERG 

8.37.11G to PERG 8.37.13G). 

(3) As explained in PERG 8.37.15G(4), the contravention of regulation 

[48] of AIFMD UK regulation results in the same penalties as a 

breach of the financial promotions regime and therefore: 

(a) when done by an unauthorised person is an offence under the 

AIFMD UK regulation and will result in the unenforceability 

of investor agreements; and 

(b) when done by an authorised person may result in an action 

for damages. 

(4) References to regulations in this guidance are to regulations of the 

AIFMD UK regulation unless provided otherwise. 

Purpose of guidance 

8.37.2 G (1) The purpose of this guidance is: 

(a) to outline the circumstances in which a person markets an 

AIF in accordance with the AIFMD UK regulation (see 

PERG 8.37.3G to PERG 8.37.8G); 

(b) to outline the circumstances in which a person is allowed by 

the AIFMD UK regulation to market an AIF (see PERG

8.37.9G to PERG 8.37.13G); 

156 

Appendix 

(c) to explain the interaction between marketing an AIF and the 

prospectus directive (see PERG 8.37.14G); and 

(d) to explain the interaction between marketing an AIF and 

financial promotion (see PERG 8.37.15G). 

(2) No guidance has been provided by the European Commission or 

ESMA on the meaning of marketing in AIFMD and therefore the 

guidance set out in this section is subject to any future clarification 

from these European bodies. 

8.37.3 The meaning of markets an AIF 

G (1) In accordance with regulation [47] (Meaning of “markets an AIF” 

and “able to promote an AIF”), a person markets an AIF when the 

person makes “a direct or indirect offering or placement of units or 

shares of an AIF”. 

(2) Marketing has a specific meaning in the context of the AIFMD UK 

regulation and is, in some respects, different to the ordinary meaning 

of the term. 

The meaning of an offering or placement 

8.37.4 G (1) The terms offering or placement are not defined in the AIFMD UK 

regulation, but in our view a person offers or places for the purposes 

of the AIFMD UK regulation when the person makes a unit of share 

of an AIF available for purchase by a potential investor. 

(2) An offering includes situations where the units or shares of an AIF 

are made available to the general public and a placement includes 

situations where the units or shares of an AIF are only made 

available to certain investors by the AIFM or a financial 

intermediary. 

Communications with investors in relation to draft documentation 

8.37.5 G (1) Under article 32 AIFMD, AIFMs are required to submit the 

documentation and information set out in Annex IV to AIFMD with 

their application for permission to market an AIF and to notify their 

competent authority of any material changes to this documentation 

and information. Therefore, the prescribed documentation and 

information must, in all material respects, be in final form before the 

AIFM may apply for permission to market an AIF. Furthermore, an 

investment by an investor must not be accepted on the basis of draft 

documentation because at this point the AIFM will not have received 

permission to market the AIF. Any communications in relation to 

this draft documentation do not, in our view, fall within the meaning 

of an offer or placement for the purposes of AIFMD, on the basis that

157 

Appendix 

at this point the AIFM cannot apply for permission to market the AIF 

and therefore the AIF cannot be made available for purchase by an 

investor. 

(2) However, regard should be had to national law in relation to any 

communications which do not amount to an offering or a placement. 

In the United Kingdom consideration needs to be given to whether 

such communications are financial promotions (see 8.37.15G). If a 

UK AIFM is marketing in another EEA State using the marketing 

passport in article 32 AIFMD, regard should be had to the national 

law of that EEA State, as the arrangements for marketing are a matter 

for the Host State in accordance with article 32(5) of AIFMD, unless 

the communication is an information society service in which case 

regard should be had to the law of the country of origin. 

The meaning of indirect offering or placement 

8.37.6 G (1) Marketing may take place by either a direct or indirect offering or 

placement of units or shares of an AIF. The reference to indirect 

offering or placement should be interpreted broadly to include 

situations where an AIFM distributes units or shares of an AIF 

through a chain of intermediaries. 

(2) For example, if the units or shares of an AIF are purchased by a third 

party, such as an underwriter or placement agent, with the objective 

of distributing them to a wider investor base, this could be an 

indirect offering or placement when those units or shares are made 

available for purchase by investors. 

The meaning of a unit or share of an AIF 

8.37.7 G The terms ‘unit’ and ‘share’ as used in the AIFMD UK regulation are 

generic and can be interpreted as encompassing all forms of equity of an 

AIF. As such, the terms are not limited to AIFs which are structured as 

companies or unitised funds and may include other forms of collective 

investment undertakings, such as partnerships or non-unitised trusts. 

Territorial scope of the marketing provisions 

8.37.8 G In accordance with regulation [48] (Prohibition on marketing), a person 

must not market an AIF to investors who are domiciled or have a registered 

office in the United Kingdom. This means that an offering or placement to 

investors who are located outside of the United Kingdom may constitute 

marketing if it is made to investors who are domiciled or have a registered 

office in the United Kingdom. 

Marketing of AIFs managed by certain categories of small AIFMs 

8.37.9 G (1) In accordance with regulation [49] (Marketing by certain categories 

of small AIFMs), a person (including the AIFM of the AIF or a 

person acting on its behalf) is allowed to market:

(a) an AIF managed by a small registered UK AIFM; or 

(b) an unauthorised AIF managed by a small authorised UK 

AIFM; or 

(c) an AIF managed by an EEA AIFM that is a small AIFM; 

158 

Appendix 

to an investor if that person is able to make a financial promotion to 

that investor. 

(2) As such that person has an automatic right to market an AIF falling 

within regulation [49] and there is no need for the AIFM of the AIF 

to have obtained permission from the FCA (or its home competent 

authority) before the AIF can be marketed in the United Kingdom. 

Passive marketing 

8.37.10 G (1) In accordance with regulation [50] (Passive marketing), a person 

(including the AIFM of the AIF or a person acting on its behalf) is 

allowed to market an AIF to an investor if: 

(a) the marketing is not at the initiative of the person; and 

(b) that person is able to make a financial promotion of the AIF to 

that investor. 

(2) As such that person has an automatic right to market an AIF in the 

circumstances set out in regulation [50] and there is no need for the 

AIFM of the AIF to have obtained permission from the FCA (or its 

home competent authority) before the AIF can be marketed in the 

United Kingdom. 

(3) In determining whether the marketing is at the initiative of the 

investor, consideration needs to be given to the course of 

communication or relationship between the investor and those 

involved with, or connected to, the AIFM or the AIF. Only 

communications which are solicited by the investor should be 

considered to have occurred at the initiative of the investor. 

(4) For example, communications which are sent to investors as part of 

an organised marketing campaign or documentation which is 

available on a publically accessible website should not be considered 

to be sent at the initiative of the investor. However, communications 

in response to an approach from a potential investor with prior 

knowledge of the AIF and no previous involvement with the AIFM 

could be at the initiative of the investor. 

Marketing with consent from the FCA 

8.37.11 G (1) In accordance with regulation [51] (Marketing with consent from 

FCA or other competent authority), an AIFM, or a person acting on

its behalf, is allowed to market an AIF: 

159 

Appendix 

(a) to a professional investor if the AIF is managed by the AIFM 

and the conditions set out in the table in regulation [51] are 

met; and 

(b) to a retail investor if the AIFM may market to a professional 

investor in accordance with (a) and the AIFM, or a person 

acting on its behalf, is able to make a financial promotion of 

the AIF to that investor. 

(2) The effect of regulation [51] is that the following types of AIFM 

must obtain approval from the FCA for the AIFM, or a person acting 

on its behalf, to be allowed to market the following types of AIF 

managed by that AIFM: 

(a) a full scope UK AIFM of: 

(i) a UK AIF; or 

(ii) an EEA AIF; or 

(iii) a non-EEA AIF; 

(b) a small authorised UK AIFM of an authorised AIF; 

(c) an EEA AIFM that is not a small AIFM of a non-EEA AIF; and 

(d) a non-EEA AIFM of: 

(i) a UK AIF; or 

(ii) an EEA AIF; or 

(iii) a non-EEA AIF. 

Marketing of a UK AIF or EEA AIF managed by an EEA AIFM that is not a 

small AIFM 

8.37.12 G (1) In accordance with regulation [51] (Marketing with consent from 

FCA or other competent authority), an EEA AIFM that is not a small 

AIFM, or a person acting on its behalf, is allowed to market a UK 

AIF or an EEA AIF: 

(a) to a professional investor using the marketing passport under 

AIFMD if the FCA has received the appropriate notification 

from the home competent authority of the AIFM; and 

(b) to a retail investor if the AIFM may market to a professional 

investor in accordance with (a) and the AIFM, or a person 

acting on its behalf, is able to make a financial promotion of 

the AIF to that investor.

160 

Appendix 

(2) The AIFMD marketing passport is not available for marketing 

(solely) to retail investors. However, in accordance with regulation 

[52] (Marketing to retail investors of an AIF managed by an AIFM 

authorised in another EEA State), a person (including an EEA AIFM 

that is not a small AIFM, or a person acting on its behalf) is allowed 

to market an UK AIF or an EEA AIF to a retail investor if: 

(a) the AIFM has obtained approval from the FCA to market the 

AIF; and 

(b) the person is able to make a financial promotion to that 

investor. 

Marketing by a person other than an AIFM or a person acting on its behalf 

8.37.13 G (1) Where consent is needed from the FCA (or the AIFM’s home 

competent authority) for an AIFM (or a person acting on its behalf) 

to market an AIF in accordance with regulation [51] (Marketing with 

consent from FCA or other competent authority), a person other than 

the AIFM (or a person acting on its behalf), such as a distributor, is 

allowed to market the AIF in accordance with regulation [53] 

(Marketing by a person other than an AIFM etc.): 

(a) if the AIFM which manages the AIF is allowed to market the 

AIF to a professional investor in accordance with regulation 

[51]; and 

(b) the person is able to make a financial promotion to that 

investor. 

(2) In other circumstances a person other than the AIFM, or a person 

acting on its behalf, may be allowed to market an AIF in accordance 

with: 

(a) regulation [49] (Marketing by certain categories of small 

AIFMs) (see PERG 8.37.9G); or 

(b) regulation [50] (Passive marketing) (see PERG 8.37.10G); or 

(c) regulation [52] (Marketing to retail investors of an AIF 

managed by an AIFM authorised in another EEA State) (see 

PERG 8.37.12G(2)). 

The interaction between marketing and the prospectus directive 

8.37.14 G (1) The prospectus directive has not been amended by AIFMD and 

closed-ended AIFs that are making an offer of securities to the public 

as defined in the prospectus directive need to comply with the 

requirements under both Directives. 

(2) However, in accordance with article 23(3) AIFMD, where an AIF is

161 

Appendix 

required to publish a prospectus under the prospectus directive only 

AIFMD required information which is additional to that required 

under the prospectus directive needs to be disclosed, and this may be 

disclosed separately or as additional information in the prospectus. 

The interaction between marketing and financial promotion 

8.37.15 G (1) There is likely to be a considerable overlap between marketing and 

financial promotion, and in the case of marketing to retail investors 

this can only be done if a financial promotion can be made to that 

investor, but the two concepts are not the same. 

(2) (a) In particular, it is possible for a person to make a financial 

promotion without marketing an AIF. For example, an AIFM 

that makes a communication in relation to an AIF would be 

making a financial promotion if that communication was a 

significant step in the chain of events leading to an agreement 

to engage in investment activity (see PERG 8.4.7G 

(Inducements)), but would not be marketing an AIF if this 

communication was in relation to draft documentation (see 

PERG 8.37.5G). 

(b) Also, it may be possible, although unusual, for a person to 

market an AIF without making a financial promotion. 

(3) No changes were made to the financial promotions regime as a result 

of the transposition of AIFMD, and therefore any person that is 

marketing an AIF needs to consider whether it is also making a 

financial promotion. However, if consent is given by the FCA to an 

AIFM to market an AIF to professional investors in accordance with 

regulation [51] (Marketing with consent from FCA or other 

competent authority) this communication by the AIFM will fall 

within the exemption in: 

(a) article 29 (Communications required or authorised by 

enactments) of the Financial Promotion Order; and 

(b) if the AIF is a collective investment scheme, article 16 

(Communications required or authorised by enactments) of 

the Financial Services and Markets Act 2000 (Promotion of 

Collective Investment Schemes) (Exemptions) Order 2001 

(SI 2001/2157); 

because it is authorised by the FCA under the AIFMD UK 

regulation. These exemptions are not available in relation to a 

person that is marketing an AIF to a retail investor in accordance 

with regulation [51] (Marketing with consent from FCA or other 

competent authority) because this marketing is not authorised by the 

FCA under the AIFMD UK regulation and is instead conditional on 

the person being able to make a financial promotion to that investor.

Flowcharts 

162 

Appendix 

(4) The penalties for a breach of the marketing prohibition in the 

AIFMD UK regulation are the same as the penalties for the breach of 

the financial promotions regime. The reason for this is that: 

(a) if the communication is made: 

(i) by an unauthorised person and contravenes section 21 

of the Act; or 

(ii) by an authorised person and contravenes section 238 

of the Act; 

the communication will have been made in breach of the 

financial promotion regime and will therefore be subject to 

the penalties for breach of this regime under the Act; or 

(b) if the communication is made: 

(i) by an unauthorised person and does not contravene 

section 21 of the Act; or 

(ii) by an authorised person and does not contravene 

section 238 of the Act; 

for example because it is made in reliance on an exemption to 

the financial promotions regime, it will be subject to the 

same penalties as if it had been made in breach of the 

financial promotions regime as a result of regulations [54] 

(Offences by unauthorised person) and [55] (Contravention 

by authorised person). 

8.37.16 G The following flowcharts summarise the following matters: 

(1) Flowchart 1 – Are you marketing an AIF in the United Kingdom? 

(2) Flowchart 2 - Does the AIFM of the AIF need to have obtained 

consent from the FCA before the AIF can be marketed in the United 

Kingdom?

Flowchart 1 - Are you marketing an AIF in the United Kingdom? 

Are you making a unit or share of an AIF available for purchase by 

a potential investor? 

Yes 

Is the potential investor domiciled, or does the potential investor 

have a registered office, in the United Kingdom? 

Yes 

You are marketing 

an AIF in the 


See flowchart 2 

163 

No 

No 

You are not marketing 

an AIF in the United 

Kingdom 

Appendix

Flowchart 2 – Does the AIFM of the AIF need to have obtained 

consent from the FCA before the AIF can be marketed in the United 

Kingdom? 

Yes 

Yes 

No 

The AIFM of the 

AIF needs to have 

obtained consent 

from the FCA 

before the AIF can 

be marketed in the 


After PERG 15 insert the following new chapter. 

16 Scope of the Alternative Investment Fund Managers Directive 


Is the marketing communication sent at the 

initiative of the investor? 

No 

Is the AIF an authorised AIF? 

No 

Is the AIF managed by a non-EEA AIFM? 

No 

Is the AIF managed by a small AIFM? 

No 

Is the AIF managed by an EEA AIFM that 

is marketing to professional investors? 

Yes 

The EEA AIFM 

must obtain consent 

from its home 

competent authority 

to market the AIF, 

but… 

164 

Yes 

Yes 

The AIFM of the 

AIF does not need to 

have obtained 

consent from the 

FCA before the AIF 

can be marketed in 

the United Kingdom 

Appendix 

Question 1.1: What is the purpose of the questions and answers in this 

chapter?

165 

Appendix 

The purpose of this chapter is to consider the scope of regulated activities 

specifically relating to the Alternative Investment Fund Managers Directive 

2011/61/EU (“AIFMD”) as implemented in the UK through the RAO. 

Question 1.2: What are the regulated activities specifically relating to 

AIFMD? 

The regulated activities that specifically relate to AIFMD are: 

(1) managing an AIF (see PERG 16.3 for more details); and 

(2) acting as a depositary of an AIF (see PERG 16.4 for more details). 

Question 1.3: What are the main European measures dealing with the 

scope? 

As well as the AIFMD itself, they are: 

(1) Commission delegated regulation (EU) No [to follow] supplementing 

Directive 2011/16/EU of the European Parliament and of the Council 

with regard to exemptions, general operating conditions, 

depositaries, leverage, transparency and supervision (“the AIFMD 

level 2 regulation”); and 

(2) the ESMA document “[Guidelines on key concepts of the AIFMD”] 

(the “ESMA AIFMD Key Concepts Guidelines”). 

Question 1.4: What is the general approach to deciding whether 

something is covered by the AIFMD? 

When defining what an AIF is the drafters of the AIFMD faced a dilemma. 

If it is defined in a precise and detailed way there is a risk that some funds 

would fall outside regulation, given the wide variety of legal forms they can 

take. However, by defining the term in a broad way there is a risk that the 

AIFMD is given a much wider scope than intended. The definition of AIF 

that was chosen is drafted at a high level of generality and uses words which 

have a wide meaning. So the FCA has approached PERG 16 by looking at 

what sorts of entities are clearly meant to be caught and then has used that as 

a guide to identify cases which are not fairly within the definition so as to 

avoid an interpretation that would give it an exorbitantly wide scope. PERG 

16 should be read in the same way and so descriptions of what is excluded 

should not be read in a narrow way that would take cases out of scope that 

are fairly within it. 

16.2 What types of funds and businesses are caught? 

Question 2.1: What is the basic definition of an AIF?

166 

Appendix 

An AIF means a collective investment undertaking, including investment 

compartments of such an undertaking, which raises capital from a number of 

investors, with a view to investing it in accordance with a defined 

investment policy for the benefit of those investors. 

The key elements of the definition are: 

(1) It is a collective investment undertaking (CIU). 

(2) It raises capital from a number of investors. 

(3) It invests that capital in accordance with a defined investment policy. 

(4) It invests that capital for the benefit of those investors. 

(5) An AIF does not include an undertaking that requires authorisation 

pursuant to article 5 of the UCITS Directive (see Question 2.26). 

It is necessary to satisfy all the elements of the definition in order to be an 

AIF. 

Question 2.2: Does an AIF have to take any particular legal form? 

No. 

An AIF may be open-ended or close-ended. Material on the meaning of an 

open-ended AIF can be found in Commission Delegated Regulation No …/.. 

with regard to regulatory technical standards determining types of 

alternative investment fund managers. 

It may or may not be listed. 

It does not matter whether it is set up under contract, trust or statute or if it 

takes another type of legal form. It does not matter what kind of legal 

structure it has. 

A limited partnership, a limited liability partnership, a limited liability 

company, an ordinary partnership, a unit trust and an ICVC could all be 

covered. 

It does not matter where the AIF is formed. It may be formed under the laws 

of any EEA State (including any part of the UK) or any non-EEA state. 

Question 2.3: What is an undertaking for these purposes? 

It covers a wide range of entities. It will include an undertaking as defined 

in the Glossary. That means it will include a body corporate or partnership. 

The Glossary definition also includes an unincorporated association carrying 

on a trade or business. Whether or not it would be caught by the Glossary 

definition, an undertaking includes a fund set up as a trust.

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Question 2.4: Is an AIF the same as a collective investment scheme? 

No, although the two concepts overlap considerably. See the answer to 

Question 5.1. 

Question 2.5: Is an undertaking excluded because it has no external 

manager? 

No. An undertaking that has no external manager and is managed by its 

own governing body may be an AIF. For example, many investment trusts 

are internally managed. 

Question 2.6: Is the definition restricted to funds that invest in certain 

kinds of asset? 

No. Assets can include, for example, traditional financial assets (equity, 

equity related and debt), private equity, real estate and also non-traditional 

asset classes such as ships, forests, wine, and any combination of these 

assets. These are just examples; assets can include assets of any kind or 

combinations of any kind of assets. 

Question 2.7: Does the definition depend on how the underlying 

property is held? 

No. The investors may receive a beneficial interest in the underlying 

property, as might be the case in a trust structure. They may also receive no 

interest in the underlying property but instead their interest may be 

represented by shares or units in the AIF, as would be the case where the 

AIF takes the form of a company limited by shares. It might even be 

possible for the investors to own the assets jointly. 

Question 2.8: Must the scheme be time-limited or designed to allow 

investors to exit from time to time or at a particular time? 

A scheme may be an AIF even if there are no arrangements for units or 

shares to be repurchased, redeemed or cancelled. Likewise a scheme may 

be an AIF even if it does not have a finite life. 

Question 2.9: Is a business excluded on the basis that it is exclusively or 

largely funded by debt or other types of leverage rather than equity 

capital? 

No. See further the answers to Questions 2.37 and 2.44. 

Key elements of the definition 

Capital-raising 

Question 2.10: You say that an undertaking needs to raise capital to be 

an AIF. What does capital raising involve?

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According to the ESMA AIFMD Key Concepts Guidelines, an activity with 

the following characteristics when carried out by an undertaking by way of 

business should amount to the activity of raising capital: 

(1) taking direct or indirect steps to procure the transfer or commitment 

of capital by one or more investors to an undertaking for the purpose 

of investment with a view to generating a pooled return for the 

investors; and/or 

(2) commercial communication between the undertaking seeking capital 

or a person or entity acting on its behalf (typically, the AIFM), and 

the prospective investors, which aims at procuring the transfer of 

investors’ capital. 

The idea of a pooled return is referred to in the answer to Question 2.16. 

It is immaterial whether these activities take place only once (as in the case 

of the initial subscription to a closed-ended fund), on several occasions or on 

an ongoing basis (as with certain open-ended funds). 

When capital is invested in an undertaking by a person or body of persons 

who is one of the following (“internal investors”): 

(1) a member of the governing body of that undertaking or the legal 

person managing that undertaking; 

(2) an employee of the undertaking or of the legal person managing the 

undertaking whose professional activities have a material impact on 

the risk profiles of the undertakings they manage and into which he 

or she invests; 

(3) a member of a pre-existing group, for the investment of whose 

private wealth the undertaking has been exclusively established; 

this is not likely to be raising capital for the purpose of the AIF definition. 

Capital provided by the AIFM is treated in the same way as other external 

capital, although if the AIFM and its group are the sole investors the group 

exclusion described in PERG 16.6 (Exclusions) may be available. 

However, if internal investors invest alongside other types of investors the 

presence of the internal investors does not mean that there is no capital 

raising. 

If the capital raising is complete before the regulated activities of managing 

an AIF and acting as a depositary of an AIF come into force the undertaking 

may still be an AIF, although transitional arrangements may apply (see Part 

9 of the AIFMD UK Regulation). 

Question 2.11: What is a pre-existing group for the purposes of the 

answer to Question 2.10?

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According to the ESMA AIFMD Key Concepts Guidelines, a pre-existing 

group means, in connection with investment in a CIU, a group of persons 

connected by a close familial relationship that pre-dates the establishment of 

the CIU. 

Question 2.12: Is a fund that only allows a single investor caught? 

According to the ESMA AIFMD Key Concepts Guidelines, it follows from 

the reference to ‘a number of investors’ in the definition of AIF that the 

AIF’s rules or instruments of incorporation cannot contain provisions which 

restrict the sale of units/shares to a single investor. However, a CIU which 

is not prevented by its national law, the rules or instruments of 

incorporation, or any other provision or arrangement of binding legal effect, 

from raising capital from more than one investor should be regarded as a 

CIU which raises capital from a number of investors. This will be the case 

even if: 

(1) it has in fact only one investor; or 

(2) a sole investor invests funds which it has raised from more than one 

person for the benefit of those persons as in the case of nominee 

arrangements, feeder structures or fund of fund structures that have 

more than one investor for the purposes of the AIFMD. 

Defined investment policy 

Question 2.13: What indicative criteria could be taken into account in 

determining whether or not an entity has a defined investment policy? 

According to the ESMA AIFMD Key Concepts Guidelines, the factors that 

could, singly or cumulatively, tend to indicate the existence of such a policy 

are the following ones. 

(1) Whether the final form of the investment policy is determined and 

fixed, at the latest by the time that investors’ commitments to the 

undertaking become binding on them. 

(2) Whether the investment policy is set out in a document which 

becomes part of or is referenced in the rules or instruments of 

incorporation of the undertaking. 

(3) Whether the undertaking or the entity managing it has an obligation 

(however arising) to investors, which is legally enforceable by them, 

to follow the investment policy, including all changes to it. 

(4) Whether the investment policy specifies investment guidelines, with 

reference to criteria including the following: 

(a) to invest in certain categories of asset, or conform to 

restrictions on asset allocation; or

(b) to pursue certain investment strategies; or 

(c) to invest in particular geographical regions; or 

(d) to conform to restrictions on leverage; or 

(e) to conform to minimum holding periods; or 

(f) to conform to other restrictions designed to provide risk 

diversification. 

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For the purposes of (4), any guidelines given for the management of an 

undertaking which determine investment criteria for purposes other than 

those set out in the business strategy followed by an ordinary company with 

general commercial purpose should be regarded as investment guidelines. 

The absence of all or any one of these factors does not conclusively 

demonstrate that no such policy exists. 

Collective investment undertaking 

Question 2.14: What is a collective investment undertaking? 

Questions 2.15 to 2.23 answer this. 

It is important to remember that if a business is a CIU that does not 

necessarily mean that it is an AIF. To be an AIF it must meet all the criteria 

set out in the answer to Question 2.1. 

Question 2.15: What is the basic definition of a collective investment 

undertaking? 

According to the ESMA AIFMD Key Concepts Guidelines, the following 

characteristics, if all of them are exhibited by an undertaking or an 

investment compartment of it, should show that the undertaking is a CIU: 

(1) it is not an ordinary company with general commercial purpose; 

(2) it pools together capital raised from its investors for the purpose of 

investment with a view to generating a pooled return for those 

investors from investments (whether or not different investors 

receive returns on different bases); and 

(3) its unitholders or shareholders have no day-to-day discretion or 

control over the management of the undertakings’ assets. 

The absence of all or any one of these factors does not conclusively 

demonstrate that the undertaking is not a CIU. 

Question 2.16: What is a pooled return for these purposes?

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According to the ESMA AIFMD Key Concepts Guidelines, it is the return 

generated by the pooled risk arising from acquiring, holding or selling 

investment assets as opposed to the activity of an entity acting for its own 

account and whose purpose is to manage the underlying assets as part of a 

commercial or entrepreneurial activity, irrespective of whether different 

returns to investors, such as under a tailored dividend policy, are generated. 

Question 2.17: The answer to Question 2.15 refers to day-to-day 

control. Is it always necessary to show that there is no day-to-day 

control? 

No. This is explained further in the answer to Question 2.48. 

Question 2.18: Is an ordinary commercial business a collective 

investment undertaking? 

No. An ordinary company with general commercial purposes is not a CIU. 

The primary purpose of a CIU is investment. This is in contrast to an 

ordinary commercial business of manufacturing, production, trading or the 

supply of services. Hence a supermarket or manufacturer is not generally a 

CIU or an AIF. However, distinctions between "investment" and "trading" 

for tax purposes are not determinative here. 

In deciding whether a scheme is for investment or commercial purposes you 

must look at all the relevant factors. Examples include: 

(1) Whether the undertaking merely holds the property with a view to 

taking advantage of changing market prices or to take the income 

stream or whether on the other hand the undertaking has to undertake 

construction, industrial or manufacturing works. 

(2) Thus for example if the undertaking is designed to further the 

existing commercial businesses of the investors rather than to 

achieve gain by realisation of the underlying assets that points away 

from it being a CIU. 

(3) Whether the undertaking itself creates the property underlying the 

scheme. 

(4) Whether the business requires substantial numbers of personnel to 

run it. One would look at whether the business is carrying out 

commercial activities which generally require the employment of 

employees, such as for the development of properties. However, it is 

consistent with being a CIU for a property business to have a 

skeleton staff to ensure that the value of its investment is maintained, 

e.g., to ensure adequate maintenance work on the buildings is carried 

out. 

(5) The extent to which the undertaking outsources its core operations to 

a third party.

(6) Whether the undertaking has the skill to monitor and control the 

work outsourced to a delegate and whether the undertaking has 

expertise in the area of the work being outsourced. 

(7) Whether it has an external manager. 

(8) Whether the directors of the undertaking are non-executive and 

whether their compensation packages reflect this. 

(9) The frequency of board meetings. 

(10) Whether the undertaking has any employees. 

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(11) If an undertaking’s business is to invest in businesses carried on by 

others without having control, that points towards the undertaking 

being a CIU. 

(12) How much revenue is derived from activities that are characteristic 

of a CIU. 

None of these factors are conclusive. 

Question 2.19: Does the answer to Question 2.18 apply where the 

property underlying the scheme is financial assets? 

In the FCA’s view, No, whether the business involves short term buying and 

selling or holding for the medium term or until maturity. 

However, the ordinary cash management activities and treasury functions of 

a general commercial venture do not point towards that venture being a CIU. 

It is still the case that a financial business must meet the definition of an 

AIF. Hence it is still the case that if it is not a CIU it is not an AIF. 

Therefore for example: 

(1) The main activity of a CIU is the investment of capital not the 

provision of services. Hence a professional partnership, even with 

outside investors, is unlikely to be a CIU. 

(2) The pooled return point referred to in Question 2.16 is relevant. 

(3) The day-to-day discretion or control point referred to in Questions 

2.15 and 2.17 is relevant. That point is in any case also part of other 

aspects of the AIF definition (see paragraphs (3) and (4) of the 

answer to Question 2.1), which apply to financial businesses as well 

as non-financial ones. 

Question 2.20: What are financial assets for the purpose of Question 

2.19?

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Financial assets for these purposes include investments under MiFID and 

investment life insurance contracts. Real estate is not considered a financial 

asset for these purposes. 

If a business holds an asset through a shell company or bare nominee the 

categorisation of the business should look through the shell to the 

underlying assets. The same applies to assets held through subsidiaries. 

An asset held for hedging purposes is not generally considered to be a 

financial instrument for these purposes. 

Question 2.21: Are there any other factors to take into account? 

In the FCA’s view one must also look at whether the undertaking is 

structured like a typical fund. If it is, that points to its being an AIF. 

One important factor is whether there is a defined mechanism for winding 

up or distribution of investment returns at a particular time or over a 

designated period. This may be the case if the undertaking is open ended, 

allowing an investor to redeem his interest within a reasonable time. 

Hence if the undertaking is set up to carry out a particular project and then to 

wind itself up and distribute the profits to investors that points towards it 

being an AIF. 

The mere fact that the undertaking is admitted to trading on an exchange or 

multilateral trading facility is unlikely to be significant on its own but may 

be relevant to the holding company exclusion (see PERG 16.6 (Exclusions)). 

Another factor is whether an offer to invest in an undertaking is marketed as 

an investment in a fund. 

Where the potential AIFM controls a portfolio of several different groups, it 

is helpful to ask whether those investee companies/groups: 

(1) are segregated from one another and whether each of them is held 

and structured for their most effective future disposal (which points 

towards an AIF); or 

(2) support one another and the group as a whole (which points away 

from an AIF). 

A key factor is how strongly the factors listed in the answer to Question 2.13 

point towards a defined investment policy. In particular the following key 

factors should be taken into account (in each case an affirmative answer 

points towards the entity being an AIF): 

(3) Whether the investment policy is fixed by the time that investors' 

commitments to the business become binding on them. 

(4) How detailed the investment policy is.

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(5) Whether the investors may take legal action against the manager of 

the AIF or the investment vehicle for a breach of the policy. 

(6) Whether the investors’ consent is needed for a change to the 

investment policy or whether the investors have the right to redeem 

their holdings if the policy changes. 

Question 2.22: Does the answer to Question 2.21 apply where the 

property underlying the scheme is financial assets? 

In the FCA’s view, Yes. 

Question 2.23: What is the justification for the approach to the 

definition of a CIU and AIF in the answers to Questions 2.15 to 2.22? 

If one interpreted the definition of CIU very broadly it would cover many 

ordinary commercial undertakings with external passive investors. The only 

things preventing such undertakings from being an AIF would then be the 

requirements for a defined investment policy and to raise capital. 

In one sense the shareholders in a supermarket invest on a collective basis in 

the underlying business of the company. It invests its shareholder funds to 

buy goods and sell them at a profit. The supermarket may set out its policy 

for investing shareholder funds in a formal policy document. It may raise 

external capital to fund its business. On a broad reading of the AIF 

definition that would mean that the supermarket would be an AIF. 

Not all commercial ventures have the generic general commercial objects of 

a standard private company; many will have very specific and detailed 

objects. For example, say that a new business is set up to sell consumer 

electronics. It raises capital and to reassure its investors its constitutional 

documents restrict it to this business. However, in every other way it is a 

conventional consumer retailer. On a broad reading of the AIF definition 

this too would be an AIF. 

Such a wide interpretation would be unreasonable. It would be 

unreasonable to say that a granular or detailed statement of commercial 

objects turns an undertaking into a CIU. It would be contrary to the early 

recitals of the AIFMD describing the purpose of the Directive. Therefore it 

is necessary to consider the policy objectives of the AIFMD. 

The AIFMD is aimed at funds. This is shown by the title of the Directive 

itself. The list of the main types of undertaking covered by the AIFMD in 

the answer to Question 2.25 is taken from the Commission Staff Working 

Document (Impact Assessment) accompanying the Proposal for the 

Directive (COM(2009) 207), which assists in analysing the AIFMD’s 

objectives.

The FCA considers that the term investment is being used in contrast to 

“commercial”. The factors set out in the answer to Question 2.18 are 

designed to draw out that distinction. 

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However, it is clear from the AIFMD and the working document that private 

equity, hedge funds and venture capital funds are intended to be within the 

scope of the AIFMD. The AIFMD expressly refers to these types of funds in 

a number of places. 

Also, a fund controlling a business is more than an investor in the sense 

brought out in the answer to Question 2.18 as it is in a position to control 

and run that business. Indeed, one of the benefits of a private equity fund is 

that it can restructure and improve businesses of target companies for the 

long term. These funds may need an extensive staff to carry on the business 

of the fund. It is clear though that a fund that takes over a business can still 

be an AIF as the AIFMD has detailed requirements for AIFs that do that. 

Thus the distinction in the answer to Question 2.18 does not work for all the 

types of undertakings to which the AIFMD is meant to apply. The way to 

reconcile this is to say that the AIFMD treats a fund as investing if its 

ultimately underlying assets are investments in the sense of financial 

instruments such as shares and debt securities. 

This approach is supported by the ESMA AIFMD Key Concepts Guidelines, 

through its view that an ordinary company with general commercial purpose 

is not an AIF. The relevant part of the ESMA AIFMD Key Concepts 

Guidelines is incorporated in the answer to Question 2.15. 

One reason for taking the approach in the answer to Question 2.21 is the part 

of the ESMA AIFMD Key Concepts Guidelines that says that one of the 

characteristics of a CIU is that it does not act for its own account (see the 

answer to Question 2.16). In legal theory there is no distinction between a 

company whose returns are for itself and one whose returns are for its 

investors as the returns of any company are generated for its investors as 

they change over time. However, in the FCA’s view this distinction is 

pointing towards the factors that distinguish a typical fund from a 

commercial company. 

The references in the AIFMD to funds, as described earlier in this answer, 

are another reason for taking this approach. The requirements about a 

defined investment policy mentioned in the answer to Question 2.21 are an 

express part of the definition of an AIF. 

Overview of the AIF definition 

Question: 2.24: Could you give a brief overview of how I should go 

about applying the guidance in PERG 2.2 in deciding whether an 

undertaking is an AIF?

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(1) First, apply the Directive definition to see if it gives a clear answer. 

of an AIF. If it does, there is no need to go further. 

(2) See whether one of the exclusions summarised in PERG 16.6 

(Exclusions) could apply. 

(3) Look at all the factors and come to an overall judgment. In 

particular, look at the following issues. 

(a) Whether it has a defined investment policy. 

(b) Whether it raises external capital from a number of investors. 

(c) Whether capital is invested on behalf of the investors, as 

opposed to the parties investing the capital for themselves 

and whether there is pooling. In particular, see whether the 

undertaking is excluded as a joint venture of family office 

vehicle (Questions 2.47 to 2.51). 

(d) Whether it is structured as a typical fund. 

(e) Whether it carries on an ordinary commercial business as 

opposed to investment. This factor is not relevant to a 

financial business. 

Examples of schemes that are AIFs and of ones that are likely not to be 

AIFs 

Question 2.25: What are the commonest types of AIFs? 

The commonest types are: 

(1) Hedge funds. 

(2) Commodity funds 

(3) Private equity funds (including large buy-out funds, mid-cap 

investment funds and venture capital funds) 

(4) Infrastructure funds 

(5) Real estate funds 

(6) Conventional non UCITS investment funds. These invest primarily 

in traditional asset classes (such as equities, bonds and derivatives) 

and pursue traditional investment strategies. 

Question 2.26: Does an AIF include a UCITS scheme? 

No. An AIF does not include an undertaking that requires authorisation 

pursuant to article 5 of the UCITS Directive.

Question 2.27: Is an investment trust an AIF? 

In principle, Yes. 

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Question 2.28: Is a fund whose activities are for non-business purposes 

covered? 

No. Arrangements do not amount to an AIF if the predominant purpose of 

the arrangements is not to invest its capital for the benefit of its investors. 

An example might be where a group of householders purchases a piece of 

neighbouring land in order to preserve or develop it as an amenity and 

prevent it from being used for housing or commercial exploitation. Such a 

case should not be considered to be an AIF since the capital raising and the 

investment are primarily undertaken for non-business purposes and are not 

intended to deliver an investment return or profit. Also, there will probably 

not be a commercial communication of the kind referred to in Question 2.10 

(Meaning of capital raising). 

However, the fact that a fund’s investors are charities or not-for-profit 

organisations does not necessarily mean that the fund is not an AIF. 

Question 2.29: Is a scheme relating to use or enjoyment of property 

caught? 

No. An undertaking does not amount to an AIF if the predominant purpose 

of the undertaking is to enable the participants to share in the use or 

enjoyment of physical property or to make its use or enjoyment available 

gratuitously to others. The reason for this is that the purpose of the 

undertaking is not investment. 

Question 2.30: Is a real estate investment trust (REIT) caught? 

The meaning, substance and structure of REIT vary across European 

jurisdictions. So this answer looks at UK REITs. 

A REIT is a concept used for tax purposes. So if a business is a REIT there 

is no presumption either way whether it is or is not a CIU or AIF. 

Question 2.31: Is a timeshare scheme covered? 

No. Arrangements do not amount to an AIF if the rights of the investors are 

rights under a timeshare contract or a long-term holiday product contract as 

defined in the Holiday Products, Resale and Exchange Contracts 

Regulations 2010. 

Question 2.32: Is a pension scheme covered?

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No. Neither an occupational pension scheme nor a personal pension scheme 

is covered. PERG 16.6 (Exclusions) sets out the relevant exclusions. The 

breadth of the wording in recital (8) of the AIFMD shows that these 

exclusions should be interpreted broadly so as to cover both sorts of scheme. 

In addition a pension scheme is sufficiently well established as a category of 

investment to mean that if the AIFMD intended to catch pension schemes it 

would have made that clear. 

However, a scheme is not excluded from being an AIF just because all its 

investors are themselves pension schemes benefitting from an exclusion. 

Question 2.33: Is a pension Common Investment Fund (CIF) covered? 

This answer deals with a scheme under which separate occupational pension 

schemes run by companies within one group co-mingle their assets or part of 

their assets in another trust. Typically, the operators of the pension schemes 

will be corporate trustees established by the employing companies as will be 

the trustee of the CIF. In such an arrangement, the persons participating in 

the CIF are the trustees of the occupational pension schemes and not the 

beneficiaries under the occupational pension schemes. Hence the group 

exclusion described in PERG 16.6 (Exclusions) should apply. 

Question 2.34: Is an employee participation scheme covered? 

No. Employee participation schemes and employee savings schemes are not 

covered. 

This exclusion covers schemes in which an employee invests in securities of 

the employer or in a company in the employee’s group (or derivatives in 

relation to them such as options). As explained in the answer to Question 

2.35 it also covers other schemes. 

In the FCA’s view the term employee is not limited to an employee under 

the technical definition in UK law. It would include personnel who work in 

the business of the undertaking concerned contributing their skills and time. 

It can include partners, directors and consultants. Employee participation 

schemes generally allow some participation by former employees and by 

spouses/close relatives and this exclusion allows schemes that include such 

participants. 

The exclusion can apply however the scheme is structured and whether or 

not a trustee is involved in the scheme. 

Question 2.35: Is a carried interest vehicle caught? 

The carried interest participation of the employees of a private equity fund 

manager in private equity funds managed by the manager will typically be 

structured through one or more carried interest vehicles which will receive 

the carried interest and in which employees of the manager will have a 

participation.

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In the FCA’s view such vehicles will generally not be an AIF. This is 

because the employee participation scheme exclusion will often apply. The 

exclusion applies because a scheme for carried interest participation allows 

the employees to benefit from the success of the AIF management 

undertaken by the employer. 

Question 2.36: Is this is the only basis on which a carried interest 

vehicle can be excluded? 

A carried interest vehicle may be excluded for another reason. As explained 

in the answer to Question 2.1, part of the definition of an AIF is that it raises 

capital from a number of investors. If employees only invest a nominal 

amount of capital the undertaking does not meet this criterion because the 

employees are not investors. One cannot say that an employee is investing 

his salary (by being remunerated by way of an interest in the vehicle rather 

than by cash) if it is a term of his employment that he would be remunerated 

with an interest in the vehicle. 

Question 2.37: Is a securitisation vehicle covered? 

No, as long as its sole purpose is to carry on: 

(1) a securitisation or securitisations; and 

(2) other activities which are appropriate to accomplish that purpose. 

For this purpose securitisation means a transaction or scheme whereby: 

(3) an asset or pool of assets is transferred to an entity that is separate 

from the originator and is created for or serves the purpose of the 

securitisation; and/or 

(4) the credit risk of an asset or pool of assets, or part thereof, is 

transferred to the investors in the securities, securitisation fund units, 

other debt instruments and/or financial derivatives issued by an 

entity that is separate from the originator and is created for or serves 

the purpose of the securitisation. 

In the case of transfer of credit risk, the transfer is achieved by either: 

(5) the economic transfer of the assets being securitised to an entity 

separate from the originator created for or serving the purpose of the 

securitisation (which is accomplished by the transfer of ownership of 

the securitised assets from the originator or through subparticipation); 

or 

(6) the use of credit derivatives, guarantees or any similar mechanism. 

Where such securities, securitisation fund units, debt instruments and/or 

financial derivatives are issued, they should not represent the originator's 

payment obligations.

Question 2.38: Can a contract of insurance itself be an AIF? 

No, as confirmed by recital (8) of the AIFMD. 

Question 2.39: Are funeral plans caught? 

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No. A funeral plan contract is not caught. Neither is a contract which 

would be a funeral plan contract but for the proviso to article 59(2) of the 

RAO or the exclusion in article 60 of the RAO. 

Question 2.40: Are individual investment management agreements 

caught? 

In principle, No. 

In principle an AIF is an investment undertaking which pools together 

capital raised from investors to invest it on a collective basis. The 

management of a portfolio of investments or other property on an individual 

client-by-client basis is covered by MiFID rather than the AIFMD. This 

arrangement falls outside the definition of an AIF as there is no CIU. The 

pooled return concept in the ESMA AIFMD Key Concepts Guidelines (see 

the answer to Question 2.16) is particularly relevant here. 

However, an AIF can take any form. It may be that a scheme is set up with 

a separate individual investment management agreement for each investor 

but that the scheme is in reality a collective scheme. If the individual 

investment management agreements are being run on a common basis and 

are being run as a single economic undertaking then the arrangements may 

be considered as a single CIU. That means that the arrangements will be an 

AIF as long as the other elements of the definition are also met. 

If the investors’ investments and returns are pooled collectively that may 

also result in it being considered a CIU. 

A firm that manages the portfolios of a number of separate clients using the 

same investment strategy and taking advantage of economies of scale does 

not for that reason stop being an individual portfolio manager. 

If the manager holds out his ability to provide bespoke investment 

management services but, in fact, arranges a fair amount of bulk dealing for 

clients with similar investment objectives that is compatible with individual 

portfolio management. 

The fact that the manager is obliged to protect the interests of the investors 

on an individual client-by-client basis points towards the arrangement being 

individual portfolio management rather than a CIU. 

Therefore if an investment manager aggregates orders on behalf of multiple 

clients or accounts, which are then allocated back to the clients following 

execution, this does not of itself mean that there are collective arrangements 

of the type that would suggest an arrangement is a CIU.

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On the other hand if each separate investment management agreement 

provides that investments and sales are to be carried out in lock step so that 

the securities to which different investors are entitled are bought and sold at 

the same time, this may result in the scheme being a CIU. The same may 

apply if the scheme is marketed or held out as being operated in this way, 

for instance as a single fund. 

Therefore a scheme may be a CIU if it is part of the scheme’s investment 

policy for investors’ holdings to be managed as a whole. For example, if the 

policy of the scheme is to take control of a company but each individual 

investor’s stake is too small to achieve control, the scheme as a whole may 

be a CIU. The same may apply for other large stakes. If for some other 

reason a scheme’s investment policy involves the manager exercising the 

voting or other rights of investors in the underlying companies as a single 

bloc the scheme may also be a CIU. 

Question 2.41: Is a stocks and shares ISA caught? 

In principle, No. A stocks and shares ISA takes the form of a scheme of 

investment managed by an account manager and under which the account 

investments are held in the beneficial ownership of the account holder. 

There is no pooling. 

Some ISAs are simply run on a self-determined basis where investors decide 

what might be held in their ISA. In that case there will be no collective 

element and hence no AIF. 

In some cases the parts of the property held in a particular ISA scheme are 

bought and sold in lock step with other ISAs run by the same manager 

except when a particular person becomes or ceases to be an investor in the 

plan. Where that is the case there is a collective element in the 

arrangements. However, in the light of the answer to Question 2.40 this will 

not be enough on its own to mean that the ISA is an AIF. 

Question 2.42: Is an enterprise investment scheme (EIS) fund caught? 

When an investor subscribes to a fund it will appoint a manager to invest his 

subscriptions, on a discretionary basis, in qualifying companies. The 

investor in the fund is the beneficial owner of the shares in which the fund 

invests for him. The investor is entitled to a whole number of shares in each 

company and not just a proportionate interest in all the shares in which the 

fund capital is invested. It is likely that the property held in a particular fund 

to which the different fund investors are entitled are not bought and sold 

separately except where a person becomes or ceases to be an investor in the 

fund. The operator is likely to hold the investments as nominee for the 

investor. These arrangements are likely to be formally documented. The 

fund may be approved by HM Revenue and Customs but need not be.

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On the face of it this involves MiFID individual portfolio management. 

However, a fund may be an AIF for the reasons mentioned in the answer to 

Question 2.40. 

Question 2.43: Is a child trust fund caught? 

No. 

The answer to Q53A in PERG 13 explains why. 

Question 2.44: Can an issue of debt securities be an AIF? 

In general, No. An issue of debt securities will not generally itself be an AIF 

although of course an AIF may well invest in debt securities. If an 

undertaking borrows money through an issue of debt securities that does not 

mean it is a CIU. In any case for there to be an AIF there is still a need for 

the investors to expect to get the return from investment by the undertaking 

in accordance with a defined investment policy. If the return on the debt 

securities was simply set at a certain rate of interest and a certain fixed 

premium and the undertaking was liable to make those payments whether or 

not they were generated by management of the assets in line with the 

investment policy, this condition would not be met. In general, an issuer of 

a loan instrument does not invest the capital it raises for the benefit of the 

subscribers for the loan instrument. 

However, the fact that an investor holds his interests in an undertaking 

through debt securities does not mean that the undertaking can never be an 

AIF. For example, say that an SPV is set up to invest in financial assets. It 

finances the purchase of those assets by an issue of debt securities. Profits 

and income from the financial assets are channelled back to the holders of 

the debt securities through interest on the debt securities and a premium on 

redemption. In principle such a scheme could be a CIU if the investors 

invested through shares in the SPV. If the SPV has no equity shareholders 

(or no significant equity shareholders) and if all the profits and losses flow 

through to the investors via the return on their debt securities it should make 

no difference that the investors hold their interest through debt securities 

rather than through shares. 

Debt securities in a securitisation special purpose vehicle are likely to be 

excluded as explained in the answer to Question 2.37. 

Question 2.45: Is an issuer of an alternative debenture an AIF? 

An issuer of an alternative debenture is not necessarily an AIF. Part of the 

definition of an alternative debenture is that the amount of any payments in 

addition to the principal amount does not exceed an amount which would, at 

the time at which the bond is issued, be a reasonable commercial return on a 

loan of the capital. The effect is that an alternative debenture is a form of 

secured loan instrument. It is therefore excluded for the reasons described in 

the answer to Question 2.44.

Question 2.46: Is an exchange traded fund (ETF) caught? 

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An ETF can take various forms. This answer focuses on a fund in the form 

of an undertaking that seeks to replicate or track movements in a chosen 

securities index by holding some or all of the underlying constituents of the 

index or entering into derivatives contracts that replicate their performance 

synthetically. 

In practice an ETF of this sort is likely to be an AIF unless, as will often be 

the case, it is a UCITS. 

Question 2.47: Is a joint venture caught? 

Not normally. 

The term joint venture does not have a precise legal meaning in EU law or a 

commonly accepted meaning across the legal systems of all Member States. 

Furthermore, the exclusion for joint ventures is not part of an operative 

provision of the Directive but is instead to be found in recital (8). Therefore, 

in order to decide what undertakings are excluded as joint ventures one must 

identify the principles on which the recital appears to be based. 

For these purposes the key part of the definition of AIF reads “collective 

investment undertakings … which … raise capital from a number of 

investors, with a view to investing it ……. for the benefit of those 

investors”. There are two aspects of this that are particularly relevant to 

joint ventures. 

(1) Capital is invested on behalf of the investors, as opposed to the 

parties investing the capital for themselves. An AIF does not include 

an undertaking that is managed by its members jointly and that is not 

managed by a third party or by only some of the investors. 

(2) A venture that does not raise external capital (see recital (7)) is not 

an AIF. The clearest example of this is the family investment 

vehicle but it is relevant to joint ventures too. 

Question 2.48: What factors are relevant to whether a joint venture is 

excluded on the basis that it is managed by its members? 

The clearest example of a joint venture is when all the parties have day-today 

control over its activities. However, it is still possible to have a joint 

venture in which not all the parties have day-to-day control.

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Joint ventures are often a marriage of equity and expertise, with one partner 

having the necessary experience to carry out the day-to-day management 

and the equity partner being involved in making more key, strategic 

decisions. The parties may also hire an outside person to manage the 

venture. These factors do not necessarily mean that the undertaking is an 

AIF. Such an undertaking may still be excluded as a joint venture if the 

strategic financial and operating decisions are under the control of all the 

parties. Each of the parties should have a continuous involvement in the 

overall strategic management of the undertaking. 

For these purposes a party does not manage the undertaking just because he 

is consulted or has the right to give directions. 

No single party should be in a position to control the activity unilaterally. 

One factor to take into account here is whether strategic decisions require 

the unanimous consent of the parties sharing control. 

The requirement that all take part in strategic management also means that 

in general the number of parties has to be sufficiently low for joint 

management to be practical. 

If the parties carry on the venture through a corporate vehicle, an investor 

may exercise this control through a nominee it appoints to the board of the 

undertaking. 

If an undertaking switches from one in which all parties have control to one 

in which some do not, that does not necessarily mean that it ceases to be a 

joint venture. In particular, if at the time that it was set up and the capital 

was put in all parties had joint control but later one retires but remains a 

party to the investment, it should not be transformed into an AIF merely by 

virtue of the retirement of that party. 

If any of the investors are retail investors, it is unlikely that an undertaking 

will be excluded from the definition of an AIF on the ground that the venture 

is managed by its members. This is because the requirement for joint 

control takes into account the practical ability to participate in joint decisionmaking 

(as well as the right to do so), taking into account skills and 

bargaining power. It is unlikely that retail investors will have such ability as 

against professional investors or managers. 

However, a private equity acquisition company may still be excluded as a 

joint venture even if it has management team shareholders who are retail 

investors. This is because the management team may well have the practical 

ability to participate in joint decision making. 

Question 2.49: What factors are relevant to whether a joint venture is 

excluded on the basis that it does not raise external capital?

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The definition of AIF envisages a distinction between the undertaking that 

raises capital and the parties who invest capital. In some cases there may be 

no such distinction. For instance commercial parties may come together on 

their own joint initiative. There is no external capital because the persons 

raising and providing capital are the same. 

Question 2.50: Can you give me some practical factors to take into 

account when deciding whether a commercial venture is excluded as a 

joint venture? 

(1) Whether the parties come together in relation to the proposed project 

before the structure of the venture is determined and capital is raised. 

(2) Whether the venture relates to a business the parties are already 

carrying on at the time it is set up. For example, the joint venture 

vehicle may merely be a legally convenient means by which joint 

venture parties combine their resources and skills to carry out a 

business activity. When looking at whether a party is already 

carrying on an activity one looks at whether it has been doing so on 

its own account rather than through investing in funds. 

(3) Whether the parties have an existing relationship. 

(4) Joint ventures are more likely to have a policy focussed on the 

achievement of the parties’ commercial goals, as opposed to a 

defined investment policy. Such an undertaking may therefore fall 

outside the AIF definition on the grounds that to be an AIF there 

must be a defined investment policy. 

An undertaking that is not excluded as a joint venture may of course fall 

outside the definition of AIF for another reason, such as its not being a CIU 

in the first place. 

Question 2.51: Are family investment vehicles AIFs? 

No. There is no specific exclusion for family investment vehicles in the 

operative parts of the AIFMD. Recital (7) of the AIFMD says that a family 

office vehicle that invests the private wealth of investors without raising 

external capital is not an AIF. Therefore in order to decide what 

undertakings are excluded as family investment vehicles one must identify 

the principles on which the recital appears to be based. In this case the 

recital is based on the part of the AIF definition that requires capital to be 

raised. Based on this, features of a family investment vehicle are likely to 

include: 

(1) There is a family relationship between the investors. 

(2) There is no raising of capital from investors outside the relationship.

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(3) The money or assets to be invested and the relationship between the 

investors pre-date the relationship between the investors and the 

vehicle. As explained in the remainder of this answer even though 

the family should pre-date the relationship between the investors and 

the vehicle that does not mean that a vehicle becomes an AIF if an 

individual joins the family later. 

Family investment vehicles can be used by large extended families spanning 

a number of generations and those born, or joining the family, before and 

after investment arrangements are made. Civil partnership as well as 

marriage may be included. A family can include step and cohabitation 

relationships as well as blood and other immediate family relationships such 

as adoption. Persons or vehicles representing eligible family members (such 

as the trustees of a family trust holding money or assets beneficially for a 

family member) may also be included. 

Question 2.52: Is a co-investment vehicle caught? 

This refers to a case in which an institutional investor confers a substantial 

mandate on an investment manager and structures the mandate through an 

investment vehicle (the co-investment vehicle). The other investors are the 

manager itself and its employees or a vehicle taking a carried interest for the 

benefit of employees of the manager. The manager and carried interest 

vehicle may make a nominal contribution for tax or other structuring 

reasons. 

A similar issue can arise with family investment vehicles. The family 

vehicle may employ third party professional investment managers, who have 

no family relationship, to manage the assets of the family. In order to align 

their interests with those of the family, the employees and managers invest 

in the co-investment vehicle alongside the family vehicle. 

In the FCA’s view, the co-investment vehicle should not be seen as an AIF. 

The co-investment vehicle is not an AIF because it only raises capital from a 

single external investor. For these purposes the vehicle through which 

employees invest and the manager should be treated as a single external 

investor. The vehicle through which employees invest is not itself an AIF 

because of the exclusion for employee participation schemes (see Questions 

2.34 and 2.35). 

If the only capital invested in the co-investment vehicle comes from the 

institutional manager or the family vehicle, it may be excluded for the 

reason described in the answer to Question 2.36. 

Question 2.53: Is an arrangement for multiple participation by a 

number of funds in a single investment a single AIF? 

Sometimes a manager may set up an arrangement under which a number of 

AIFs participate in a particular investment.

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The question is then whether there is a single AIF or whether each fund is 

still a separate AIF. 

As explained in the answer to Question 2.40 the starting position is that a 

series of investments in parallel do not amount to a single AIF. The fact that 

each fund has different investors and its own arrangements between its 

investors is an additional factor that points towards there being separate 

funds. 

It is also necessary to take into account that article 26 of the AIFMD 

(Obligations for AIFMs managing AIFs which acquire control of non-listed 

companies and issuers: Scope) contemplates that several AIFs may agree 

jointly to acquire control of a non-listed company without that resulting in 

all the AIFs being considered as a single AIF. 

This is consistent with the policy of the AIFMD because the investors will 

still have the protections given by national laws implementing the AIFMD. 

The factors relating to whether an undertaking is excluded as a joint venture 

are likely to be relevant (see the answer to Questions 2.47 to 2.51). For 

these purposes it will normally only be necessary to consider the 

involvement of the AIFs themselves and not the individual investors in each 

AIF. 

Question 2.54: Is an acquisition vehicle for an AIF itself a separate 

AIF? 

Sometimes an AIFM establishes an SPV or acquisition vehicle as an 

administrative convenience in order to facilitate a specific transaction or 

transactions to be carried out by the AIFM. 

Generally the SPV should not be treated as a separate AIF for the purposes 

of the AIFMD. The vehicle does not raise capital from investors. Rather, it 

would merely be a means of investing capital already raised by the AIF. 

Essentially it is merely part of the mechanical and administrative 

mechanisms for putting into operation a scheme of investment that has 

already been set up. 

Question 2.55: Does it make a difference if there are co-investors? 

Sometimes some of the co-investors participating in an investment may not 

themselves be AIFs. There may set up an acquisition vehicle for the AIF 

and the other co-investors. Such an arrangement may well not itself be a 

separate AIF. The factors relating to whether an undertaking is excluded as 

a joint venture are likely to be relevant (see the answer to Questions 2.47 to 

2.51). 

Question 2.56: Is a central counterparty in a clearing system an AIF? 

No.

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The answer to Question 2.19 says that a business that buys and sells 

financial instruments is in principle likely to be a CIU. However, this does 

not mean that a central counterparty in a clearing system is a CIU because it 

is a party to each trade as principal. That firm is providing a service to 

members of the system and not investing in the securities bought and sold in 

its role as central counterparty. 

Question 2.57: Is a firm that deals in financial instruments on its own 

account caught? 

The answer to Question 2.19 says that a business that buys and sells 

financial instruments is in principle likely to be a CIU. As explained in the 

answer to Question 43 in PERG 13.5 (Exemptions from MiFID), CIUs are 

specifically exempt from MiFID, as are their depositaries and managers. An 

AIF is a CIU and an AIFM is a manager. 

The question is therefore about when a company that buys and sells 

financial instruments for its own account is covered by the AIFMD rather 

than MiFID. 

In the FCA’s view the answer is likely to depend on the following factors in 

particular: 

(1) the need for a defined investment policy (see Question 2.13); 

(2) whether it raises external capital (see Question 2.10); and 

(3) whether it is set up like a fund or an ordinary commercial financial 

services company (see Question 2.21). 

Question 2.58: Is a bank or insurer caught? 

An undertaking authorised under the Insurance Directives or the Banking 

Consolidation Directive will not be an AIF. 

Other general points 

Question 2.59: Does this interpretation of a CIU apply to MiFID? 

Broadly speaking, Yes. 

As explained in the answer to Question 43 in PERG 13, article 2(1)(h) of 

MiFID says that MiFID does not apply to CIUs and their managers and 

depositaries. In general terms that exclusion and the scope the AIFMD 

should be interpreted consistently. However, in the FCA’s view the 

requirements of the AIF definition for capital raising and a defined 

investment policy and certain of the exclusions from AIFMD (such as the 

exclusion for holding companies) can also be seen as aspects of the general 

definition of what a CIU is for the purposes of MiFID.

Therefore the exclusion in article 2(1)(h) of MiFID covers an AIF and a 

UCITS and their managers and depositaries but does not go further. 

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The question of what a unit in a CIU is for the purposes of MiFID should be 

looked at in a similar way. 

Question 2.60: What is an investment compartment of an AIF? 

An investment compartment is similar to and corresponds with the Glossary 

term sub-fund. It therefore refers to an undertaking whose property is 

divided into separate pools, each of those pools being a compartment. See 

Question 2.16 for pooling. See the answer to Question 2.62 about when a 

sub-fund should be treated as a separate AIF and not a compartment of one. 

Question 2.61: Is each investment compartment a separate AIF? 

In the FCA’s view an investment compartment of an AIF should not be 

treated as a separate AIF for the purpose of the general prohibition. In the 

FCA’s view the phrase “including investment compartments of such an 

undertaking” in the definition of an AIF (see the answer to Question 2.1) 

means that an investment compartment of an AIF is treated as being part of 

that AIF. 

An alternative approach is that each compartment should be treated as a 

separate AIF but the overall fund should not. The FCA does not agree with 

this interpretation because a compartment in its ordinary meaning is 

something that is part of something bigger. Also, potentially the role of 

manager of the overall fund is significant and it is unlikely that it would fall 

outside regulation altogether. 

Another argument against this alternative approach is the requirement in 

article 5(1) of the AIFMD that each AIF have a single AIFM. It would be 

difficult to meet that requirement if each compartment is subject to the 

management of the manager of the overall fund. It would also seem 

unlikely that the AIFMD would get round that problem by implicitly 

prohibiting funds from having an overall manager. 

Another interpretation is that the undertaking as a whole and each 

compartment are separate AIFs. The FCA does not agree with that 

interpretation for similar reasons. 

However, in the FCA’s view the definition of AIF also means that if an 

undertaking is divided into several compartments and the undertaking 

overall does not meet the AIF definition, an individual compartment can be 

an AIF.

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Question 2.62: How do you tell whether something is a separate AIF or 

an investment compartment of an AIF? 

The first thing is to see whether it meets the definition of an investment 

compartment in the answer to Question 2.60. 

If it does, the next thing is to decide whether it should be treated as an AIF 

in its own right. A key factor in deciding whether something is a separate 

AIF or an investment compartment of one is whether it is documented and 

operated as a single fund. This will take into account whether it is 

documented as a separate fund, whether it is managed as a whole and 

whether an investor in one fund is entitled to exchange his investment in that 

fund for an investment in the other. 

The fact that one fund invests all its assets in another does not make them 

into a single fund as the AIFMD recognises that feeder and master funds can 

remain separate funds. 

Question 2.63: What if part of an undertaking meets the AIF definition 

and part does not? 

If an undertaking taken as a whole meets the requirements of an AIF it 

should be of no relevance that one or more investment compartments of it do 

not have such characteristics. 

According to the ESMA AIFMD Key Concepts Guidelines (summarised in 

the answer to Question 2.15), if specified characteristics are exhibited by an 

undertaking or an investment compartment of it, that shows that the 

undertaking is a CIU. That might appear to mean that if an undertaking 

taken as a whole is not an AIF but an investment compartment of it meets 

the requirements of an AIF, the whole undertaking becomes an AIF. 

However, the FCA believes this statement should be interpreted in the way 

explained in the answer to Question 2.61. The result is that the undertaking 

as a whole will not be an AIF but an individual compartment may be. 

It is however unlikely that an ordinary commercial company would ever be 

organised with separate investment compartments and so this issue may be 

of no more than theoretical interest. 

Question 2.64: How would you summarise what the answers to 

Questions 2.61 to Question 2.63 say about the treatment of a sub-fund? 

The first thing is to decide if the sub-fund should be treated as an AIF in its 

own right (see Question 2.62). 

If it should be treated as a separate AIF on this basis it is not an investment 

compartment of the overall fund.

16.3 Managing an AIFM 

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If it should not be treated as a separate AIF on this basis, the sub-fund 

should not be treated as a separate AIF. It is part of the overall fund and an 

investment compartment of an AIF. The manager of the sub-fund is not 

managing an AIF whereas the manager of the overall fund is. 

Question 3.1: What does managing an AIF mean? 

A person manages an AIF when the person performs: 

(1) risk management; or 

(2) portfolio management; 

for the AIF. 

Question 3.2: If a person performs only one of the activities listed in the 

answer to Question 3.1 does it manage an AIF? 

Yes. However, a firm is not permitted to be authorised to manage an AIF on 

that basis (see FUND 1.4.4R(4)). A firm will not be given permission to 

provide portfolio management without also providing risk management or 

vice versa. 

Question 3.3: Are the activities mentioned in the answer to Question 3.1 

the only activities included in managing an AIF? 

No. If a person manages an AIF (within the meaning set out in the answer 

to Question 3.1), and also carries on: 

(1) one or more of the additional activities listed in paragraph 2 of 

Annex I to the AIFMD for that AIF (see Question 3.4); or 

(2) one or more other activities in connection with or for the purposes of 

the management of that AIF; 

those activities are included in the regulated activity of managing an AIF. 

Question 3.4: What are the additional activities referred to paragraph 

(1) of the answer to Question 3.3? 

They are as follows: 

(1) administration: 

(a) legal and fund management accounting services; 

(b) customer inquiries;

(c) valuation and pricing, including tax returns; 

(d) regulatory compliance monitoring; 

(e) maintenance of unit or shareholder register; 

(f) distribution of income; 

(g) units/shares issues and redemptions; 

(h) contract settlements, including certificate dispatch; 

(i) record keeping; 

(2) marketing; and 

(3) activities related to the assets of AIFs, namely: 

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(a) services necessary to meet the fiduciary duties of the AIFM; 

(b) facilities management; 

(c) real estate administration activities; 

(d) advice to undertakings on capital structure, industrial strategy 

and related matters; 

(e) advice and services related to mergers and the purchase of 

undertakings; and 

(f) other services connected to the management of the AIF and 

the companies and other assets in which it has invested. 

Question 3.5: Does anyone carrying on only the activities listed in the 

answer to Question 3.4 carry on the regulated activity of managing an 

AIF? 

No. Those activities only involve managing an AIF in relation to a 

particular AIF if the person doing them is carrying on the part of the 

regulated activity of managing an AIF in relation to that AIF described in 

the answer to Question 3.1. So if an AIFM carries on the activities listed in 

the answer to Question 3.4 in relation to a fund of which it is the AIFM those 

activities are included in the regulated activity of managing an AIF. But if 

the activities listed in the answer to Question 3.4 are carried on by a third 

party that third party will not be carrying on the regulated activity of 

managing an AIF in relation to that AIF, although that third party may be 

carrying on other regulated activities, such as arranging (bringing about) 

deals in investments or making arrangements with a view to transactions in 

investments. 

Question 3.6: Can an AIF manage itself?

Yes. An AIFM may be either: 

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(1) an external AIFM appointed by or on behalf of the AIF to manage the 

AIF (an external AIFM); or 

(2) where the legal form of the AIF permits internal management and 

where the AIF’s governing body chooses not to appoint an external 

AIFM, the AIF itself (an internal AIFM). 

Question 3.7: If the manager delegates some functions to a third party 

does that mean that the third party is managing an AIF? 

Not necessarily. 

If the delegation relates to the additional services described in the answer to 

Question 3.4 the delegate will not be managing an AIF for the reason in the 

answer to Question 3.5. 

Even if the AIFM delegates part of the core functions described in the 

answer to Question 3.1 that does not mean that delegate is managing an AIF. 

A person manages an AIF as an external manager if that person is appointed 

by or on behalf of the AIF to manage it. In the FCA’s view that does not 

include a person carrying out the tasks only by way of delegation. The 

person carrying out the delegated tasks is not providing collective portfolio 

management to the end-investors, but individual portfolio management to 

the AIFM. The AIFMD recognises that tasks can be delegated without the 

delegate itself becoming an AIFM (see for example article 20(1)). 

The same result applies if the delegate is appointed by an AIFM that is also 

the AIF itself and has permission to act as such as by definition only the AIF 

itself can be an AIFM of this type. 

The same applies if an EEA AIFM of an EEA AIF delegates functions to a 

UK firm. 

Question 3.8: I have heard talk about letter box entities. Is this relevant 

to the regulated activity of managing an AIF? 

Article 82 of the AIFMD level 2 regulation says that an AIFM shall be 

deemed a letter-box entity and shall no longer be considered to be the 

manager of the AIF in a number of specified situations. 

However, in the FCA’s view, while the definition of AIFM should be read in 

accordance with article 82, this does not affect the definition of the 

regulated activity. In other words there is not a full overlap between the 

AIFM definition and the regulated activity although the two definitions are 

closely related. So therefore while article 82 will often be important in 

deciding who the AIFM is, in the FCA’s view it does not apply for the 

purposes of determining whether a person is carrying on the regulated 

activity of managing an AIF.

The FCA’s reasons for saying this include: 

(1) The RAO does not cross refer to article 82 of the AIFMD level 2 

regulation. 

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(2) The RAO does not include the requirement in the AIFM definition 

that the AIFM be a legal person, which shows that the two provisions 

are not fully aligned. 

(3) In particular, the point in (2) is shown by regulation 5(2)(a) of the 

AIFMD UK regulation, which says that the FCA must not give 

permission to an applicant to manage an AIF if the applicant is not a 

legal person. This would not be necessary if every element of the 

AIFM definition were incorporated in the regulated activity. 

(4) Article 82 of the AIFMD level 2 regulation is about whether or not a 

person is the AIFM and so taking the FCA’s approach does not mean 

that the UK is denying the direct effect of the AIFMD level 2 

regulation in relation to the definition of AIFM itself. 

(5) There is a good reason for not aligning the two definitions. It is 

necessary to avoid the risk that a manager that delegates to this 

degree falls out of regulation because it stops carrying on a regulated 

activity. One of the purposes of regulation is to stop a manager 

doing this. 

However, if the manager of an AIF (A) delegates so many functions to B 

that A becomes a letter box under article 82, B is likely to be managing an 

AIF. The answer to Question 3.7 does not apply because B has taken on the 

role of AIFM and A is not permitted to delegate to B in a way that turns A 

into a letter box. A is not delegating its functions but giving them up. 

Question 3.9: If a person is not eligible to be appointed as an AIFM 

because it is not a legal person but it is nevertheless appointed to 

manage an AIF does that mean that it cannot carry on the regulated 

activity of managing an AIF? 

No. The fact that it is not eligible to be appointed as an AIFM does not 

mean that it is not managing an AIF. That means that an unauthorised 

person may breach the general prohibition by carrying on the regulated 

activity of managing an AIF even though the person does not qualify for a 

Part 4A permission because that person is not a legal person. 

Question 3.10: Can an AIF in the form of a limited partnership under 

the Limited Partnerships Act 1907 appoint its general partner as the 

AIFM? 

Yes. It will be an external AIFM (please see the answer to Question 3.6 

about the difference between an external and internal AIFM).

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Strictly speaking this question is not relevant to the definition of managing 

an AIF but this is a convenient place to discuss the point. 

On the face of it the answer should be No. The starting position is that if an 

AIF is managed by the body that has responsibility for governing it under 

the legislation under which the AIF is formed, the AIF is internally 

managed, particularly if there is no governing body that appoints and 

supervises the manager and the manager is a member of that AIF. A general 

partner is a partner and there will usually be no governing body separate 

from the general partner. Hence on this approach a limited partnership 

would be internally managed. In the case of an English limited partnership 

that would be contrary to the AIFMD as an AIFM must be a legal person and 

an English limited partnership is not a legal person. 

However, in the FCA’s view the roles of the limited and general partners are 

sufficiently distinct for one to be able to say that the limited partnership does 

not manage itself. The distinction between the two roles does not stem from 

the fact that the general partner manages the partnership but from the fact 

that the roles of general and limited partner are provided for by the 

legislation under which limited partnerships are formed and that the 

legislation in practice prevents the limited partners from managing the 

partnership (because for as long as a limited partner takes part in the 

management of the partnership business it is liable for the partnership’s 

debts as though it were a general partner). 

In principle the same should apply for jurisdictions outside England and 

Wales with legislation drafted in the same way. 

16.4 Acting as a depositary 

Question 4.1: What does acting as a depositary of an AIF involve? 

Acting as: 

(1) the trustee of a unit trust scheme; or 

(2) the depositary of an open-ended investment company; or 

(3) the depositary of another undertaking; 

where the scheme, company or other undertaking is an AIF of one of the 

following kinds: 

(3) an AIF managed by a full scope UK AIFM; or 

(4) a UK AIF managed by an EEA AIFM; or 

(5) an authorised AIF managed by a small authorised UK AIFM.

Question 4.2: What does depositary mean for these purposes? 

It means: 

196 

Appendix 

(1) a person appointed in accordance with article 21.1 of the AIFMD 

(whether or not the appointment is required by that article); or 

(2) an article 36 custodian as defined in regulation 3(1) of the AIFMD 

UK Regulation. 

Question 4.3: What does trustee mean for these purposes? 

It means a person holding the property of the scheme on trust for the 

participants and appointed in accordance with article 21.1 of the AIFMD 

(whether or not the appointment is required by that article). Although article 

21 refers to a written contract and in the UK a trust is not necessarily a 

contract, a trust deed is treated as a contract for these purposes. 

Question 4.4: The AIFMD allows the depositary to delegate some 

functions to a third party. Is that third party acting as the depositary of 

an AIF? 

No. The AIFMD envisages that a depositary under article 21 of the AIFMD 

remains the sole depositary even if, in accordance with that article, it 

delegates certain of its functions.

16.5 How the AIFMD affects other regulated activities 

Overlap with the collective investment scheme definition 

197 

Appendix 

Question 5.1: Do the definitions of collective investment scheme and 

AIF overlap? 

Yes. The definition of a collective investment scheme does not exclude an 

AIF. Hence the two definitions sit alongside each other and overlap 

extensively. Many AIFs will also be collective investment schemes. It is 

therefore possible that an unauthorised person who operates a fund will both 

be establishing, operating or winding up a collective investment scheme and 

managing an AIF. 

However, not every AIF is a collective investment scheme. The main 

example of an AIF that is not a collective investment scheme is an AIF in the 

form of a body corporate other than an open-ended investment company, 

such as an investment trust. Therefore the existing case law on the 

definition of a collective investment scheme does not decide whether an 

undertaking is a CIU and the material in PERG 16 about the definition of an 

AIF and CIU does not determine whether an undertaking is a collective 

investment scheme. 

Question 5.2: Won’t the overlap between collective investment schemes 

and AIFs mean that an AIFM will need unnecessarily overlapping 

permissions? 

No. If a person has a Part 4A permission to manage an AIF, activities 

carried on by that person in connection with or for the purposes of managing 

an AIF are excluded from all other regulated activities. 

In addition, a person (A) does not carry on the regulated activity of 

establishing, operating or winding up a collective investment scheme if A 

carries on that activity in relation to an AIF, and: 

(1) at the time A carries on the activity, the AIF is managed by a person 

with a Part 4A permission to manage an AIF (who may be a third 

party or A itself); or 

(2) no more than 30 days have passed since the AIF was managed by a 

person with that permission. 

Overlap between the depositary and custody activities 

Question 5.3: Does the depositary of an AIF also need permission for 

safeguarding and administering investments? 

No. A person does not safeguard and administer investments if the person 

carries on the activity in relation to an AIF and the person has a Part 4A 

permission to act as a depositary of an AIF in respect of that AIF.

Interests in an AIF as specified investments 

198 

Appendix 

Question 5.4: How do the advising and intermediary activities relate to 

an AIF? 

Although an interest in an AIF is not separately specified by the RAO as a 

type of security or relevant investment in its own right it will normally, 

depending on the legal form of the AIF concerned, fall within one of the 

other categories of security or relevant investment, such as a share or unit. 

That means that the regulated activities of: 

(1) dealing in investments as agent; 

(2) arranging (bringing about) deals in investments; 

(3) making arrangements with a view to transactions in investments; and 

(4) advising on investments; 

will apply in the same way as they do to other investments of the relevant 

type. Therefore, for example, a firm that advises on investing in an AIF that 

is a collective investment scheme will be advising on units. 

Examples 

Question 5.5: Please give me some examples of how the regulated 

activities specific to AIFs interact with other regulated activities. 

Please see the following table. All the examples involve UK persons. 

Part 1: Examples of how the regulated activities specific to AIFMs interact with 

other regulated activities 

Example Explanation of interaction with other 

regulated activities 

(1) A firm (A) with permission to 

manage an AIF manages an AIF that is 

also a collective investment scheme 


establish, operate or wind up a 

collective investment scheme wants to 

manage an AIF 

A does not need permission to 

establish, operate or wind up a 

collective investment scheme. 

A needs to vary its permission to cover 

managing an AIF

(3) An unauthorised person (A) 

manages an AIF that is also a collective 

investment scheme and also operates it. 

No authorised AIFM is in place. 


manage a UCITS wishes to act as an 

AIFM 


manage an AIF delegates the 

management of some of the AIF’s 

securities portfolios to B. 

(6) Same as example (5). B’s Part 4A 

permission covers managing an AIF or 

managing a UCITS. 

(7) A has permission to manage an 

AIF. The AIF has several investment 

compartments. A appoints B to 

manage the securities portfolio which 

makes up one of these compartments. 

199 

Appendix 

A will both be establishing, operating 

or winding up a collective investment 

scheme and managing an AIF. The 

effect of the overlap between the 

definition of an AIF and of a collective 

investment scheme is different for 

unauthorised persons. 

A will need permission to manage an 

AIF. 

B does not manage an AIF for the 

reasons described in the part of the 

answer to Question 3.7 dealing with the 

delegation of core functions. Even if 

this activity could otherwise be 

establishing, operating or winding up a 

collective investment scheme, it will not 

be in this case for the reasons described 

in the answer to Question 5.2. 

However, B manages investments. See 

article 78 of the AIFMD level 2 

regulation (Delegation of portfolio or 

risk management) on the ability of an 

AIFM to delegate portfolio 

management or risk management to a 

person authorised or registered for the 

purpose of asset management. 

Same answer. B’s Part 4A permission 

should be amended to cover managing 

investments. 

The answer for example (5) applies 

here too. The investment compartment 

is not treated as a separate AIF for the 

purpose of applying the guidance on 

delegation. This arrangement is not 

contrary to the requirement in article 

5(1) of the AIFMD that each AIF have 

only one AIFM as that requirement 

operates at the level of the AIF and not 

each separate investment compartment. 

See the answer to Question 2.61.


manage an AIF delegates risk 

management to a UK firm, B. 

(9) A carries out portfolio management 

of an AIF as well as risk management. 

B runs the rest of the scheme. 

(10) A is managing an AIF (and has 

permission to do so) and is responsible 

for issuing and selling units or shares in 

the AIF. 

(11) A is managing an AIF (and has 

permission to do so). B is in charge of 

administering the scheme. 

(12) Same as example (11). Then A 

resigns as manager. 

200 

Appendix 

B does not manage an AIF. If the fund 

is also a collective investment scheme B 

does not need permission to establish, 

operate or wind up a collective 

investment scheme. See example (5). 

However, A will not be able to delegate 

to B unless B has permission to manage 

investments, manage an AIF or manage 

a UCITS because of article 78 of the 

AIFMD level 2 regulation (Delegation 

of portfolio or risk management). 

A is managing an AIF. The difference 

to example (5) is that B has not 

delegated portfolio management to A. 

See example (11) for the treatment of 

B. 

Selling shares or units often involves 

dealing in investments as principal or 

dealing in investments as agent. 

However, A does not need these 

permissions as the activities are 

covered by the extended definition of 

managing an AIF described in the 

answer to Question 3.4 and hence A 

does not need permission to deal in 

investments as principal or deal in 

investments as agent in relation to the 

sale of the units or shares in the AIF. 

B is not establishing, operating or 

winding up a collective investment 

scheme for the reasons described in the 

answer to Question 5.2. B is not 

managing an AIF for the reasons 

described in the answer to Question 3.5. 

Same answer as example (11). B may 

carry on its activities for 30 days while 

a new AIFM is put in place.

(13) A firm with permission to manage 

an AIF sets up an AIF that is also a 

collective investment scheme. A 

intends to manage it. 

(14) A sets up an AIF that is also a 

collective investment scheme. A does 

not intend to manage it. B has been 

appointed as AIFM. B has permission 


(15) A (acting by way of business) sets 

up an AIF that is also a collective 

investment scheme. A does not intend 

to manage it. A has lined up a firm (B) 

with permission to manage an AIF to 

be the AIFM but B has not been 

appointed yet. 


manage an AIF manages an AIF and 

carries out portfolio and risk 

management for the AIF. A also is in 

charge of marketing and issuing units in 

the AIF. As part of that process A 

gives investment advice to potential 

investors. 

201 

Appendix 

The fact that A is establishing a 

collective investment scheme does not 

mean A needs permission to establish, 


investment scheme. In the FCA’s view 

taking preliminary steps towards the 

carrying on of a regulated activity is 

itself carrying on that activity. A 

manager who is setting up a scheme is 

taking preliminary steps of that kind to 

manage an AIF. Hence the exclusion 

described in the answer to Question 5.2 

applies. 

As explained in example (13) taking 

preparatory steps towards carrying on a 

regulated activity is itself a regulated 

activity. On this approach as B has 

started managing an AIF, the exclusion 

described in Question 5.2 comes into 

play and A does not need permission 

for establishing a collective investment 

scheme. 

A will require permission to establish, 


investment scheme as B has not begun 


A does not need permission for 

advising on investments. Instead the 

advisory activity is included within 

managing an AIF. Marketing and 

issuing units in the AIF is part of the 

extended managing activity (see 

Question 3.4). As explained in the 

answer to Question 5.2, if a person has 

a Part 4A permission to manage an 

AIF, activities carried on by that person 

in connection with or for the purposes 

of managing an AIF are excluded from 

all other regulated activities. The 

advice is included in managing an AIF 

as explained in paragraph (2) of the 

answer to Question 3.3.

(17) Same as example (16). However, 

(leaving aside the RAO provisions 

explained in PERG 16.3 and PERG 

16.5) the advisory activity would not 

have involved advising on investments. 

202 

Appendix 

Same as answer as for example (17). 

The advisory activity is still a regulated 

activity, as part of managing an AIF. 

Part 2: Examples of how the regulated activities specific to depositaries interact 

with other regulated activities 

Example Explanation of interaction with other 

regulated activities 

(1) A is the depositary of an AIF and its 

permission covers this activity 

(2) A is the depositary of an AIF and its 

permission covers this activity. A 

delegates some of the custody activities 

to B. 

(3) A is depositary of an AIF. A carry 

vehicle or co-investment scheme 

invests alongside the AIF. That vehicle 

is a collective investment scheme and A 

is its custodian. The schemes invest in 

financial assets. 

16.6 Exclusions 

Question 6.1: What exclusions are there? 

A acts as a depositary of an AIF. A 

does not safeguard and administer 

investments. 

For A, the result is the same as under 

example (2). B does not act as a 

depositary of an AIF but instead 

safeguards and administers 

investments. 

A’s role in relation to the AIF means 

that its permission should cover acting 

as a depositary of an AIF. A’s role in 

relation to the carry or co-investment 

vehicle means that its permission 

should cover safeguarding and 

administering investments. The 

exclusion described in the answer to 

Question 5.3 does not apply in relation 

to the carry or co-investment vehicle. 

The following table lists the exclusions. Some exclusions are relevant to the 

definition of an AIF, some to the definition of an AIFM and some to both. 

Table: Exclusions

Entities that are not AIFs Persons excluded from the 

definition of managing an AIF 

An institution for occupational 

retirement provision which falls 

within the scope of Directive 

2003/41/EC on the activities 

and supervision of institutions 

for occupational retirement 

provision 

An employee participation 

scheme or employee savings 

scheme 

A securitisation special purpose 

entity 

An institution for occupational 

retirement provision which falls 

within the scope of Directive 

2003/41/EC on the activities 

and supervision of institutions 

for occupational retirement 

provision, including, where 

applicable, the authorised 

entities responsible for 

managing such institutions and 

acting on their behalf referred to 

in article 2.1 of that directive, or 

the investment managers 

appointed pursuant to article 

19.1 of that directive, insofar as 

they do not manage AIFs 

National, regional and local 

governments and bodies or 

other institutions which manage 

funds supporting social security 

and pension systems 

An employee participation 

scheme or employee savings 

scheme 

A securitisation special purpose 

entity 

203 

Appendix 

Where 

further 

Handbook 

material can 

be found 

Question 

2.32 

Questions 

2.34 and 

2.35 

Question 

2.37 

A holding company A holding company Questions 

6.2 to 6.5 

A small registered UK AIFM FUND 1 

An AIFM that manages a group 

AIF 

Question 6.6

The European Investment Fund, 

the European Development 

Finance institutions and 

bilateral development banks, 

the World Bank, and other 

supranational institutions and 

similar international 

organisations, in the event that 

such institutions or 

organisations manage AIFs and 

in so far as those AIFs act in the 

public interest 

Note: All references are to this chapter of PERG unless otherwise stated 

Question 6.2: Is a holding company subject to AIFMD? 

No. There is a specific exclusion for a holding company. 

204 

Appendix 

None 

For these purposes a holding company means a company with shareholdings 

in one or more other companies, the commercial purpose of which is to 

carry out a business strategy or strategies through its subsidiaries, associated 

companies or participations in order to contribute to their long-term value 

and which is either a company: 

(1) operating on its own account and whose shares are admitted to 

trading on a regulated market in the European Union; or 

(2) not established for the main purpose of generating returns for its 

investors by means of divestment of its subsidiaries or associated 

companies, as evidenced in its annual report or other official 

documents. 

In the FCA’s view this exclusion is at least in part by way of clarification. 

In some circumstances compliance with the conditions of the exclusion will 

mean that there is no AIF in the first place. 

Question 6.3 How wide does the holding company exclusion go? 

Broadly speaking, therefore, an undertaking will be able to use the holding 

company exclusion if: 

(1) it carries out a commercial business strategy through its 

participations by contributing to their long-term value; and 

(2) it does not generate its returns for its investors by means of 

divestment of its participations. 

The question then is what else the exclusion covers.

205 

Appendix 

Recital (8) of AIFMD says that managers of private equity funds or AIFMs 

managing AIFs whose shares are admitted to trading on a regulated market 

should not be excluded from its scope. 

On the other hand, the exclusion envisages that an undertaking whose main 

purpose is generating returns for its investors by means of divestment of its 

subsidiaries or associated companies may still be excluded from the AIFMD 

if its shares are listed. 

The question then is how the recital and the exclusion are to be reconciled. 

The FCA understands that the generally accepted view amongst other 

European supervisors is that the definition has to be read as a whole and 

jointly with recital (8). Consequently private equity as such should not be 

deemed to be a holding company. Whether a company is "operating on its 

own account" should be assessed, according to this view, on a case-by-case 

basis, taking into account for instance whether the economic 

interest/return/benefits are for the investors not for the company. 

The distinction between a company whose returns are for itself and one 

whose returns are for its investors is discussed in the answer to Question 

2.23 as this factor is also relevant to whether there is an AIF in the first 

place. 

This does not completely explain the part of the exclusion that refers to 

shares being admitted to trading (see paragraph (1) of the answer to 

Question 6.2). In the FCA’s view this part of the exclusion is limited to 

internally managed undertakings. Therefore this part of the exclusion 

applies to a business if: 

(3) it carries out a commercial business strategy through its 

participations by contributing to their long-term value; 

(4) the AIF is self-managed; and 

(5) the AIF’s shares are admitted to trading on a regulated market in the 

European Union. 

Question 6.4: Is the holding company exclusion always available where 

the fund holds controlling stakes in the businesses in which it invests so 

that the businesses are its subsidiaries? 

No. It is important to remember that the exclusion is only available if the 

company carries out a business strategy or strategies through its subsidiaries. 

In other words, the company should act in the same way as a conventional 

holding company of an industrial group would act. This means that the 

holding company must be responsible (with the subsidiaries) for the overall 

strategy of the subsidiaries. So if the manager’s subsidiaries are 

manufacturers, the manager must be responsible, with the subsidiaries 

themselves, for the manufacturing strategy of the subsidiaries.

206 

Appendix 

In general it is inherent in the concept of a holding company that all 

operations apart from those related to the ownership of shares and assets are 

done via its subsidiaries, associated companies or participations. A holding 

company may also provide services to other members of the group such as 

raising capital through the capital markets. 

Question 6.5: What does company mean in the holding company 

exclusion? 

As explained in the answer to Question 2.23, the FCA thinks that the basic 

distinction in the AIFMD is between investment activities and 

commercial/industrial activities. The holding company exclusion is an 

illustration of this basic approach. For that reason the FCA believes that the 

term company should be interpreted broadly to cover any undertaking such 

as, for example, a limited liability partnership. 

Question 6.6: What does the group AIF exclusion involve? 

An AIFM which manages one or more AIFs whose only investors are: 

(1) the AIFM; or 

16.7 By way of business 

16.8 Territorial scope 

(2) the parent undertakings of the AIFM; or 

(3) the subsidiary undertakings of the AIFM; or 

(4) other subsidiary undertakings of those parent undertakings; 

is excluded from the regulated activity of managing an AIF provided that 

none of the investors is an AIF. 

Question 7.1: Must the AIFMD regulated activities be carried on by 

way of business for authorisation to be required? 

Yes. Under section 22 of the Act (Regulated activities), for any activity to 

be a regulated activity it must be carried on by way of business. 

Question 7.2: What is the test for whether activities are carried on by 

way of business? 

The test for whether the regulated activities of managing an AIF and acting 

as a depositary of an AIF are carried on by way of business is the one 

described in PERG 2.3.2(2)G.

Question 8.1: What is the territorial scope of the AIFMD regulated 

activities? 

207 

Appendix 

PERG 2.4 (Link between activities and the United Kingdom) describes the 

general principles. 

Section 418 of the Act (Carrying on regulated activities in the United 

Kingdom) describes the circumstances in which an activity is treated as 

carried on in the UK in circumstances in which it would not otherwise be. 

PERG 2.4.3G describes these. 

Leaving aside section 418, generally speaking the activities of managing an 

AIF and acting as a depositary of an AIF are carried on where the place of 

business of the AIFM or depositary from which those activities are carried 

out is located. 

If one of these activities is carried on from a number of locations, some in 

the UK and some not, the activity is treated as being carried on in the UK if 

there is some continuity or regularity of provision within the UK of activities 

which are a significant part of the activity of managing an AIF or acting as a 

depositary of an AIF. 

Question 8.2: Are the additional activities described in the answer to 

Question 3.4 relevant? 

Yes. When deciding whether a company is managing an AIF in the UK and 

splits the work between an office in the UK and one outside, one should take 

into account any of the additional activities described in the answer to 

Question 3.4 if the manager is performing risk management or portfolio 

management, even if all the risk management or portfolio management is 

carried on outside the UK.

Full name of firm † 

Purpose of this form 

(SUP 13 Annex 1R – Notification under SUP 13.5.1R) 

You should complete this form if you are a UK firm that wishes to exercise a passport right to 

establish your first branch in a particular EEA State. You should also use this form if you are a UK 

firm that wishes to notify us – the FSA – of changes to the details of your current branch. 

Important information you should read before completing this form 

A UK firm can only use this form if it is entitled to establish a branch in another EEA State subject to 

the conditions of a relevant single market directive (see Schedule 3 of the Financial Services and 

Markets Act 2000 (FSMA)). By completing this form, you are confirming this is the case. UK firms 

should consult the legislation or take their own legal advice both in the UK and in the relevant EEA 

State(s) if they are in any doubt. 

We give guidance on this in Chapter 13 of the Supervision manual (SUP). In particular, a UK firm 

that wants to exercise an EEA right must have the specific activity included in its Scope of 

Permission (unless the UK firm is a subsidiary of a firm which is a credit institution that meets the 

criteria set out in the Banking Consolidation Directive). 

Filling in the Form 

1. If you are using your computer to complete the form, use the TAB key to move from 

question to question and press SHIFT TAB to move back to the previous question. Once 

completed, print the relevant sections and sign the declaration in section 10 11. 

2. If you are filling in the form by hand, use black ink, write clearly and, once you have 

completed the relevant sections, sign the declaration in section 10 11. 

3. All firms should answer sections 1, 2 and 10 11. Sections 3-9 10 refer to specific 

directives and only relevant sections should be completed. However, please answer all 

questions in the sections relevant to you. 

4. If there is not enough space on the form, you may need to use separate sheets of paper. 

Clearly mark each separate sheet of paper with the relevant question number. 

The Financial Services Authority 


Canary Wharf 

London 

E14 5HS 

UK 

Telephone: +44 (0)20 7066 1000 

Fax: +44 (0)20 7066 9798 

Website: www.fsa.gov.uk 

Registered as a Limited Company in England and Wales No 1920623. Registered Office as above.

… 

10 Alternative Investment Fund Managers Directive 

Note to Question 

10.2 

Provide a programme 

of operations stating 

in particular the 

services which the 

AIFM intends to 

perform and the 

organisational 

structure of the 

branch. 

For a suggested 

template firms may 

adhere to question 4.2 

when preparing a 

programme of 

operations 

Please also identify 

the AIFs that the AIFM 

intends to manage. 

10.1 You must select those activities that you wish to carry out under 

AIFMD as listed in article 6(2) and 6(4) of AIFMD. 

Management of AIFs 

Management of portfolios of investments, including 

those owned by pension funds and institutions for 

occupational retirement provision in accordance with 

Article 19(1) of Directive 2003/41/EC, in accordance 

with mandates given by investors on a discretionary, 

client-by-client basis. 

Investment advice 

Safekeeping and administration in relation to shares or 

units of collective investment undertakings. 

Reception and transmission of orders in relation to 

financial instruments. 

10.2 Please give details of the firm's programme of operations

1011 Declaration 

… 

I enclose the following sections (mark the appropriate section) * 

Section 1 – Contact Details (mandatory) 

… 

Section 10 - Alternative Investment Fund Managers Directive 

Section 1011 – Declaration (mandatory) 

…

Notification of intention to provide cross border 

services in another EEA state (with respect to managing 

an AIF) 

AIFMD management passport (services) (SUP 13 Annex 8AR – Notification under SUP 

13.5.2R) 

Full name of firm 


You should complete this form if you are a UK firm that wishes to exercise a passport right to 

provide cross border services in another EEA State under the Alternative Investment Fund 

Managers Directive (“AIFMD”) to manage an EEA AIF. 

You may also use this form if you are a UK firm that wishes to notify us (the FCA) of 

changes to the details of that cross border services. 


A UK firm can only use this form if it is entitled to provide cross border services into another EEA 

State subject to the conditions of AIFMD (see Schedule 3 to the Financial Services and Markets Act 

2000 (FSMA)). By completing this form, you are confirming this is the case. UK firms should 

consult the legislation or take legal advice both in the UK and in the relevant EEA State(s) if they are 

in any doubt. 

We give guidance on this in Chapter 13 of the Supervision manual (SUP). In particular, a UK firm 

that wants to exercise an EEA right must have the specific activity included in its Scope of 

Permission and must be a full scope UK AIFM. 

Filling in the form 

1. If you are using your computer to complete the form, use the TAB key to move from 

question to question and press SHIFT TAB to move back to the previous question. Once 

completed, print the relevant sections and sign the declaration in section 4. 

2. If you are filling in the form by hand, use black ink, write clearly and, once you have 

completed the relevant sections, sign the declaration in section 4. 

3. If there is not enough space on the form, you may need to use separate sheets of paper. 

Clearly, mark each separate sheet of paper with the relevant question number. 



Canary Wharf 

London 

E14 5HS 

UK 

Telephone: +44 (0)20 7066 1000 

Fax: +44 (0)20 7066 9798 



1 Contact details 

1.1 Details of the person we will contact about this application 

FSA reference 

number 

Contact name 

Telephone number 

Fax number 

Email address

2 Details of the services to be provided 

2.1 Please indicate the EEA State(s) into which services are to be provided. 

Note to Question 2.1 

UK firms have the right to 

provide cross border 

services to Gibraltar. 

References in this form to 

an EEA State include 

references to Gibraltar (see 

the Financial Services and 

Markets Act (Gibraltar) 

Order 2001). 

Austria 

Belgium 

Bulgaria 

Cyprus 

Czech Republic 

Denmark 

Estonia 

Finland 

France 

Germany 

Gibraltar 

Greece 

Hungary 

Iceland 

Ireland 

Italy 

Latvia 

Liechtenstein 

Lithuania 

Luxembourg 

Malta 

Netherlands 

Norway 

Poland 

Portugal 

Romania 

Slovak Republic 

Slovenia 

Spain 

Sweden 

All States 

States required 

2.2 If the firm intends to provide services into more than one EEA State, will these 

services vary for each State? 

Yes 

No 

2.3 Tell us the proposed date for the business to start. 

Date dd/mm/yy

3 Alternative Investment Fund Managers 

3.1 You must select those activities that you wish to carry out under AIFMD as listed in 

article 6(2) and 6(4) of AIFMD. 

Please give details of the firm's programme of operations 

Management of AIFs 

Management of portfolios of investments, including those owned 

by pension funds and institutions for occupational retirement 

provision in accordance with Article 19(1) of Directive 2003/41/EC, 

in accordance with mandates given by investors on a 

discretionary, client-by-client basis. 

Investment advice 

Safekeeping and administration in relation to units of collective 

investment undertakings. 

Reception and transmission of orders in relation to financial 

instruments. 

3.2 Please give details of the firm’s programme of operations 


3.2 






perform. 



intends to manage.

4 Declaration 

Note to Declaration 

If you are submitting this 

notification electronically you 

do not need to provide a 

signature here. However, you 

still need to have the authority 

to make this notification on 

behalf of the firm. 

It is a criminal offence to knowingly or 

recklessly give us information that is false or 

misleading. If necessary, please seek appropriate 

professional advice before supplying 

information to us. 

There will be a delay in processing the 

application if any information is inaccurate or 

incomplete. And failure to notify us 

immediately of any significant change to the 

information provided may result in a serious 

delay in the application process. 

I understand it is a criminal offence knowingly or recklessly to give 

the FCA information that is false or misleading in a material particular. 

I confirm that the information in this form is accurate and complete to 

the best of my knowledge and belief. 

I confirm that I am authorised to sign on behalf of the firm. 

Name 

Position 

Signature 

Date dd/mm/yy 

I enclose the following sections 

Section 1 – Contact details 

Section 2 – Details of the services 

Section 3 – Alternative Investment Fund Managers 

Section 4 – Declaration

Where to send this form 

1) Please address the form to: 

(a) a member of or for the attention of our Passport Notification 

Unit, or if submitted with an application for Part 4A 

permission, our Authorisation Department; and 

(b) send it to us by one of the methods described in (2) below. 

(2) Please send the form by: 

(a) emailing it to [fca passporting email address to follow], if not 

submitted with an application for Part 4A Permission; or 

(b) leaving the application at our Canary Wharf office (see (a) 

above) and obtaining a time-stamped receipt; or 

(c) posting it to The Financial Conduct Authority, 25 The North 

Colonnade, Canary Wharf, London E14 5HS; or 

(d) hand delivering it to a member of the Passport Notification 

Unit or, if submitted with an application for Part 4A 

permission, to the Authorisation Department; or 

(e) faxing it to the Passport Notification Unit on 020 7066 9798 (if 

not submitted with an application for Part 4A Permission). 

If you have any questions or need additional information, please contact 

the Passport Notification Unit on 020 7066 1000 or email [fca passporting 

email address to follow].

Notification of intention to provide cross border 

services in another EEA state (with respect to marketing 

an AIF) 

AIFMD Marketing passport (SUP 13 Annex 8BR – Notification under SUP 13.5.2R) 

Full name of firm 


You should complete this form if you are a UK firm that wishes to exercise a 

passport right to provide the cross border services in another EEA State under the 

Alternative Investment Fund Managers Directive (“AIFMD”) to market a UK AIF 

or EEA AIF. 

You may also use this form if you are a UK firm that wishes to notify us (the FCA) 

of changes to the details of that cross border service. 


A UK firm can only use this form if it is entitled to provide cross border services into 

another EEA State subject to the conditions of AIFMD (see Schedule 3 to the Financial 

Services and Markets Act 2000 (FSMA)). By completing this form, you are confirming 

this is the case. UK firms should consult the legislation or take legal advice both in the UK 

and in the relevant EEA State(s) if they are in any doubt. 

We give guidance on this in Chapter 13 of the Supervision manual (SUP). In particular, a 

UK firm that wants to exercise an EEA right must have the specific activity included in its 

Scope of Permission and must be a full scope UK AIFM. 

Filling in the form 

1. If you are using your computer to complete the form, use the TAB key to move 

from question to question and press SHIFT TAB to move back to the previous 

question. Once completed, print the relevant sections and sign the declaration in 

section 4. 

2. If you are filling in the form by hand, use black ink, write clearly and, once you 

have completed the relevant sections, sign the declaration in section 4. 

3. If there is not enough space on the form, you may need to use separate sheets of 

paper. Clearly, mark each separate sheet of paper with the relevant question 

number. 



Canary Wharf 

London 

E14 5HS 

UK 

Telephone: +44 (0)20 7066 1000 

Fax: +44 (0)20 7066 9798 



1 Contact details 

1.1 Details of the person we will contact about this application 

FSA reference 

number 

Contact name 

Telephone number 

Fax number 

Email address

2 Details of the services to be provided 

2.1 Please indicate the EEA State(s) into which services are to be provided. 

Note to Question 2.1 

UK firms have the right to 

provide cross border 

services to Gibraltar. 

References in this form to 

an EEA State include 

references to Gibraltar (see 

the Financial Services and 

Markets Act (Gibraltar) 

Order 2001). 

Austria 

Belgium 

Bulgaria 

Cyprus 

Czech Republic 

Denmark 

Estonia 

Finland 

France 

Germany 

Gibraltar 

Greece 

Hungary 

Iceland 

Ireland 

Italy 

Latvia 

Liechtenstein 

Lithuania 

Luxembourg 

Malta 

Netherlands 

Norway 

Poland 

Portugal 

Romania 

Slovak Republic 

Slovenia 

Spain 

Sweden 

All States 

States required 

2.2 If the firm intends to provide services into more than one EEA State, will these 

services vary for each State? 

Yes 

No 

2.3 Tell us the proposed date for the business to start. 

Date dd/mm/yy

3 Alternative Investment Fund Managers 

Please provide the following documentation and information. 

3.1 Details of the firm’s programme of operations 


3.2 






perform 



intends to manage. 

3.2 A copy of the AIF rules or instruments of incorporation 

3.3 The identity of the depositary of the AIF. 

3.4 A description of, or any information on, the AIF available to investors

3.5 If the AIF is a feeder AIF, the jurisdiction in which the master AIF is 

established. 

3.6 Any additional information referred to in FUND [3.2.2R (Prior disclosure 

of information to investors)], for each AIF the AIFM intends to market. 

3.7 Information about arrangements made for the marketing of the AIF.

3.8 Where relevant, arrangements established to prevent the AIF from being 

marketed to an investors that is a retail client, including in the case where the 

AIFM relies on the activities of independent entities to provide investment 

services in respect of the AIF.

4 Declaration 

Note to Declaration 

If you are submitting this 

notification electronically you 

do not need to provide a 

signature here. However, you 

still need to have the authority 

to make this notification on 

behalf of the firm. 

It is a criminal offence to knowingly or recklessly give 

us information that is false or misleading. If necessary, 

please seek appropriate professional advice before 

supplying information to us. 

There will be a delay in processing the application if 

any information is inaccurate or incomplete. And 

failure to notify us immediately of any significant 

change to the information provided may result in a 

serious delay in the application process. 

I understand it is a criminal offence knowingly or recklessly to give 

the FCA information that is false or misleading in a material particular. 

I confirm that the information in this form is accurate and complete to 

the best of my knowledge and belief. 

I confirm that I am authorised to sign on behalf of the firm. 

Name 

Position 

Signature 

Date dd/mm/yy 

I enclose the following sections 

Section 1 – Contact details 

Section 2 – Details of the services 

Section 3 – Alternative Investment Fund Managers 

Section 4 – Declaration

Where to send this form 

1) Please address the form to: 

(a) a member of or for the attention of our Passport Notification 

Unit, or if submitted with an application for Part 4A 

permission, our Authorisation Department; and 

(b) send it to us by one of the methods described in (2) below. 

(2) Please send the form by: 

(a) emailing it to [fca passporting email address to follow], if not 

submitted with an application for Part 4A Permission; or 

(b) leaving the application at our Canary Wharf office (see (a) 

above) and obtaining a time-stamped receipt; or 

(c) posting it to The Financial Conduct Authority, 25 The North 

Colonnade, Canary Wharf, London E14 5HS; or 

(d) hand delivering it to a member of the Passport Notification 

Unit or, if submitted with an application for Part 4A 

permission, to the Authorisation Department; or 

(e) faxing it to the Passport Notification Unit on 020 7066 9798 (if 

not submitted with an application for Part 4A Permission). 

If you have any questions or need additional information, please contact 

the Passport Notification Unit on 020 7066 1000 or email [fca passporting 

email address to follow].

PUB REF: 004681 


25 The North Colonnade Canary Wharf London E14 5HS 

Telephone: +44 (0)20 7066 1000 Fax: +44 (0)20 7066 1099 


Registered as a Limited Company in England and Wales No. 1920623. Registered Office as above.

CP13/9 Implementation of the Alternative Investment ... - BVCA admin

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